Appetite for new infrastructure allocations is falling among institutional investors as the challenges facing the sector have increased, according to a survey by BlackRock.
The asset manager quizzed 248 senior staff from insurance companies, managing $6.5 trillion, and found that more than a third were planning to decrease their exposure to infrastructure debt. A quarter of respondents said they would be reducing their allocations to infrastructure equity.
“Many insurers who had planned increases to their portfolio are revising their goals for this asset class and are seeking to diversify elsewhere.”BlackRock’s report into the survey results said infrastructure was “highly competitive, in short supply, and sometimes has lower than expected yields.”
“As a result, many insurers who had planned increases to their portfolio are revising their goals for this asset class and are seeking to diversify elsewhere,” the report added.
Patrick Liedtke, head of financial institutions at BlackRock, said supply dynamics had also changed during 2015. Banks “have not pulled back as much as expected” from infrastructure, he said, as regulatory pressure has eased. In addition, banks have noticed the rising demand for assets and so are more willing to hold on in an effort to get a higher price.
“A lot of companies have opened up to infrastructure but have had a reality check,” Liedtke added. “Opportunities aren’t as good as they were so investors are taking a step back.”
A recent report from data company Preqin said that infrastructure funds closed in the first nine months of 2015 had taken on average more than two years to achieve their fundraising target. The 160 funds in the market seeking investor capital at the start of October was the highest number on record, Preqin said, while uncalled capital across all funds stood at $115 billion.
Andrew Moylan, head of real assets at Preqin, said infrastructure fund managers were “facing more competition to put capital to work, and finding attractive assets at compelling pricing is a challenging prospect.”