Investors Ordering Second Helping of Infrastructure

Investors are coming good on promises to commit to infrastructure.

(September 18, 2013) — Almost two-thirds of investors who have already committed to infrastructure projects are planning to commit more to it over the next 12 months, according to a report by Preqin.

The research surveyed 450 active investors from June to August 2013 and found significant growth in appetite for investing in the asset class—funds closed in 2013 have already accumulated to $17 billion, a 55% increase from $11 billion in the same period last year.

Preqin also found that 47% of investors expect to invest at least $100 million in infrastructure next year, with 12% with plans to invest over $500 million.

The data is promising for the growing industry.

Some 71% of those allocate over $500 million said they prefer direct investment strategies.

The increasing interest in infrastructure stems from investors’ satisfaction with returns as 93% of surveyed investors said their infrastructure portfolios have either met or exceeded their expectations over the past 12 months. This is an improvement from 81% who gave the same response when surveyed in August 2012.

“Institutional investor appetite for infrastructure investments is strong,” said Elliot Bradbrook, manager of infrastructure data at Preqin. “Investors are increasingly satisfied with their performance of their infrastructure portfolios, and are looking to commit more capital to the asset class in the future.”

Investors have begun turning to infrastructure either as an addition to their return-seeking private equity portfolio or as a strategy to achieve lower longer-term yields, the study found.

However, the asset class is fairly small and young in the world of alternative assets, making manager selection an even more difficult process, said Preqin.

The report outlined other concerns for investing in the growing asset class including regulation, fund performance, and the economic environment. Investors also found fund managers inexperienced and without an established track record in the industry of infrastructure.

One surveyed UK-based pension fund said there may be too many investors looking to invest in too few opportunities. Other investors are wary of the possibility of the rising interest pushing up asset valuations enough to reduce returns.

The full report can be found here.

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