Infrastructure is a strapping adolescent of an asset class that already has had its share of growing pains.
It's been a rough few years. During the recession, fundraising of infrastructure private equity funds plummeted 80%. Some infrastructure managers disappeared, while others suffered from low returns caused by taking on too much leverage.
But much has changed in the past 12 months. Stock market volatility is making infrastructure more attractive to investors searching for lower volatility investments with steady returns from big assets — such as airports — that often have little competition, industry insiders say.
Infrastructure fund managers worldwide now have a total of $65.2 billion in capital committed but not yet invested in their funds, according to London-based alternative investment research firm Preqin.
Investors are adding infrastructure allocations or beefing up existing ones. But they are not filling these allocations the old-fashioned way — strictly with funds. Instead, even smaller investors are crafting co-investment strategies and investing in separate accounts. Larger investors are keen on making direct investments, with an assist from a manager or a consultant to find prospective deals.
Among experienced infrastructure players investing directly in projects are the Abu Dhabi Investment Authority, China Investment Corp., Government Investment Corp. of Singapore, Ontario Teachers' Pension Plan, Canada Pension Plan, Ontario Municipal Employees Retirement System, California Public Employees' Retirement System and California State Teachers' Retirement System.
“The longer an institution has been an (infrastructure) investor, the more likely it will invest directly, as long as it is large enough, has the corporate governance, the compensation scheme and the ability to attract qualified, experienced personnel,” said Mark Weisdorf, CEO and head of OECD infrastructure investment at New York-based J.P. Morgan Asset Management.
“(For) some of the Canadian, Australian, Dutch and Spanish investors, those that do have the experience and expertise, it is a natural evolution of any investment strategy,” he said.