Infrastructure managers, flush with capital from years of success on the fundraising trail expect lagging transactions volumes to pick up, but returns are another story.
Falling yields and the growing demand for infrastructure have resulted in lower average returns for infrastructure in recent years, industry insiders say.
While an investor might have been able to achieve a low double-digit return on a large infrastructure investment three or four years ago, "this is now more likely to be in the high single digits," said Lee Mellor, director in the London office of middle-market infrastructure management firm Ancala Partners LLP.
"Returns will vary based on asset, sector, geography and even the size of the transaction," Mr. Mellor said. "Given the current low-yield environment, investors are attracted to the yields that are available through infrastructure and hence there is now significant capital competing for certain assets."
Returns also vary widely by fund vintage year. The median net internal rate of return for an infrastructure fund closed in 2014 is 10.4%, down from 12% for 2010 vintage funds but up from 8% for 2012 vintage funds and 9.4% for 2013 funds, according to data from London-based alternative investment research firm Preqin.
But investors see more benefits to infrastructure investing than just the returns.
In May, the New Mexico State Investment Council, Santa Fe, committed $100 million to Macquarie Infrastructure Partners IV.
The $22.1 billion endowment has a 9% target allocation to real assets that includes infrastructure, timberland and agriculture. The role of real assets within the broader portfolio is to provide cash-flow and a hedge against inflation, said Paul Chapman, director of real estate and real assets, investment committee meeting minutes of the May meeting show. Mr. Chapman emphasized the large need for infrastructure development within the U.S. Some $401 million of the council's $1.1 billion real asset portfolio is invested in infrastructure, according to the meeting minutes.
Overall, the council has achieved a 12.5% net return for calendar year 2016, according to a report by real asset consultant Townsend Group for the council's June 27 meeting. Infrastructure along with energy were the leading contributors to that performance.