Followers of the Chinese Zodiac will be familiar with the practice of assigning an animal sign to each year, but looking back on this year from an alternatives perspective, we’d like to make a case for 2017 not as Year of the Rooster, but the Year of Infra.
It’s not just that the asset class is on track to raise a record amount of capital this year (though it probably is); or that Global Infrastructure Partners has closed the biggest unlisted infrastructure fund ever on $15.8 billion (a number that rivals the largest vehicles raised in more established asset classes like real estate and private equity); it’s that infrastructure has taken another giant step to establishing itself firmly as a mainstream investment.
That’s in large part due to how high it’s been on the agenda of governments around the world, including high-profile support from the likes of US President Donald Trump and Canadian Prime Minister Justin Trudeau. Even when that talk has yet to be accompanied by decisive policy action, as has been the case with the US administration, the discussion generated has already been “very helpful, even if nothing else happens”, as former Build America Bureau executive director Martin Klepper told attendees at our recent New York Summit.
In fact, that conversation has been invaluable, raising the asset class’s profile in the minds of LPs and gatekeepers that had not yet been exposed to it, but are still looking for yield and diversification at a time of unprecedented central bank intervention in the economy. As icebreakers go, you couldn’t have asked for a much better one.
Crucially, this heightened awareness comes at a time when the asset class increasingly has something to show for itself. True, infrastructure does not have the deep datasets offered by older asset classes. But between the work being done by the likes of EDHECInfrastructure and the realisation of initial fund vintages, a picture begins to emerge of what infrastructure can actually deliver.
So far, it’s mostly doing what it says on the tin – sometimes with aplomb – which should reassure those looking to take their first tentative steps into the asset class.
Of course, it hasn’t all been plain sailing this year and well-known challenges – infrastructure’s persistent supply-demand imbalance; overheating pockets of the market; regulatory creep, increasingly brought on by national security considerations – persist.
Nor does everyone agree about the virtues of private capital participation in infrastructure development. Ask UK Prime Minister-in-waiting Jeremy Corbyn and his shadow chancellor, John McDonnell, and you will get a decidedly hostile answer. For them, the role of the private sector (inasmuch as it has one) is to finance the endless pile of Treasuries they will need to fund their spending plans. Still, it’s telling that even they agree on the virtues of infrastructure investment, even if they disagree about the private sector’s role in delivering that investment.
As we go into 2018, infrastructure is, by and large, an asset class with a good reputation, free from the political bashing private equity increasingly gets and the questions about money provenance that never seem too far away from real estate investment. That’s an excellent foundation on which to build.
Which brings us to a few housekeeping items for the remainder of 2017. This week will be our last week of regular news reporting. Next week, we will be publishing our traditional Year in Review pieces, looking back on some of the major themes of the year. Regular service will resume after the New Year.
In the meantime, the team at Infrastructure Investor wishes you a Merry Christmas and a Happy New Year! And if you haven’t already, don’t forget to vote for our annual Global Awards before 7 January.