South America, Asia: The Cat's Meow With Infrastructure Investment

(September 27, 2011) — Emerging markets are bracing for an influx of infrastructure investment, according to Preqin, and South America and Asia have taken the lead.

“The study suggests that the outlook for the asset class is really positive,” said Preqin’s Elliot Bradbrook. “More money is likely to flow into the industry in the coming year, and as our previous study of investors showed, almost two-thirds are planning to continue investing in unlisted infrastructure in the longer term.”

The firm found that half of infrastructure investment consultants believe that Asia will offer attractive investment opportunities during the next 12 months, while 42% view South America favorably.

Preqin said it expects Europe to remain the focus of infrastructure investment over the short-to-medium term, with the industry likely to expand in both the emerging markets and North America. Preqin’s research showed that 42% of infrastructure investors are pension plans; 19% are public, 17% private and 6% superannuation schemes.

Bradbrook continued: “…Investors are still cautious following the downturn. If fund managers are to be successful in attracting investments in these competitive times they need to ensure that they offer attractive terms and conditions to their potential investors and satisfy the growing demand for improved reporting and increased investor interaction.”

Another study conducted in June by J.P. Morgan Asset Management (JPMAM) echoed Preqin’s positive outlook on investment in Asia, noting that Asian infrastructure represents an increasingly attractive opportunity as the region experiences stronger demand for electricity, roads, railways, and phone lines.

“Asian infrastructure is becoming increasingly attractive as a proxy for capturing the longer-term growth outlook of the various Asian economies in light of inflation and rate rises,” commented Vijay Pattabhiraman, Chief Investment Officer for Asian Infrastructure in the Global Real Assets Group of J.P. Morgan Asset Management. He asserted that urbanisation, the expansion of a wealthier middle class, and increasing domestic consumption have been the key drivers of Asia’s strong growth trends.

Pattabhiraman added: “The increased demand for infrastructure which follows years of underinvestment has created a situation where supply is unable to keep pace with demand. Emerging Asia’s large economies, such as China and India, are significantly behind their more developed peers in the west, which we view as a tremendous opportunity in the upcoming years.”