Demand for infrastructure assets with a dependable, existing income stream now exceeds supply. That means investors might not get the income and return they hope for from future investments.
It's a familiar story in alternative investments, experts said: too much money chasing too few opportunities. This scenario often leads to poor returns.
Since the global financial crisis, cash flow has not been the biggest contributor to private infrastructure returns as some investors expected. And higher risk private infrastructure investments have provided less return than lower risk investments in the asset class, data show.
Industry insiders are concerned, although whether a bubble is forming is up for debate.
The asset class has such a brief investment history — just more than 20 years — that if infrastructure disappoints institutional investors now, they could stay away from investing in private infrastructure, said Peter Hobbs, managing director at Investment Property Databank Ltd., London, a research firm that is a subsidiary of MSCI Inc.
Michael Underhill, chief investment officer at Pewaukee, Wis.-based real asset money manager Capital Innovations LLC, is one of those who sees an infrastructure bubble forming.
He noted current data point that way. “Bubblicious fund activity — 148 private infrastructure funds currently in market as of 4 November 2014,” Mr. Underhill wrote in an e-mailed response to questions.
There was $150 billion in uncalled capital or “dry powder” committed to the asset class as of that date, as fund managers waited “for a correction or valuation reset” because values are high in North American infrastructure projects, Mr. Underhill wrote. He cited a combination of data from Capital Innovations, London-based alternative investment research firm Preqin and publisher Institutional Real Estate Inc.