A record amount of institutional money is being committed to infrastructure investments, but only a small fraction of that bonanza is slated for new “greenfield” projects in fast-growing emerging markets in Asia.
Of the record $93 billion in uncalled capital, or dry powder, in unlisted infrastructure funds at the end of October, $9.5 billion was dedicated to Asia ex-Australia — a roughly 10% share that has held fairly steady in recent years, noted Elliot Bradbrook, London-based manager of infrastructure data with alternatives investment research firm Preqin Ltd. (All figures in this story, unless specified, are in U.S. dollars.)
By contrast, 45% of that pent-up demand is focused on North America, and 33% on Europe, according to Preqin.
For the most part, limited partners in those funds are seeking “stable and predictable returns/yields from their infrastructure portfolios” — giving established, operational “brownfield” infrastructure assets in Europe and North America pride of place over yet-to-be-built “greenfield” opportunities in emerg-ing markets, Mr. Bradbrook said in an e-mailed response to questions.
That global search for yield has left most investors focused on brownfield investments, even if “a growing minority are willing to consider greenfield,” said Duncan Hale, Sydney-based head of infrastructure research investment at Towers Watson & Co.
And pride could come before a fall — in yields.
Pent-up demand among institutional investors for those lower-risk operational assets in Europe, North America and Australia has produced an “obvious mismatch,” with demand far exceeding supply, noted Karen Chester, a Sydney-based partner with Mercer Investments (Australia) Ltd., and Mercer's global head of infrastructure.
Warryn Robertson, a Sydney-based portfolio manager of Lazard Asset Management's $4 billion global listed infrastructure strategy, said his firm pegs the dry powder war chest at $150 billion — a wall of money driving competition for suitable infrastructure assets, which in turn has left managers of unlisted infrastructure funds paying premiums of as much as 20% to 30% over similar listed infrastructure assets.
Lazard's strategy focuses on assets that have monopoly-like characteristics, are less subject to inflation risk and generally have more predictable return patterns, capable of giving superannuation and sovereign wealth fund clients less volatile returns somewhere between what bonds and stocks are offering, he said.