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A problem of access

For limited partners, it may be a source of immense frustration that access to infrastructure investment is limited at a time of great opportunity. They will need to think carefully about how to overcome this.

In its recent Navigator report, Swiss alternative asset manager Partners Group draws attention to the factors making this potentially a golden period for infrastructure investment.

First, Partners Group believes that infrastructure assets have delivered on their promise to maintain healthy and steady income streams through the recession.

Referring to the Dow Jones Brookfield Global Infrastructure index, it says the median EBITDA growth of infrastructure companies remained in positive territory through 2008 and 2009, while S&P 500 companies registered steep declines during the same period.

The report also points out that since the beginning of the crisis, infrastructure valuations have decreased markedly and are now at levels last seen between 2002 and 2003. Scarcity of capital, more realistic assumptions on future growth rates and higher risk premiums have combined to produce stark falls in entry prices.       

The problem for LPs is how to access the current opportunity. Only a relatively small amount of capital will be able to do so through funds. The report notes that, at the beginning of 2009, it was anticipated that infrastructure funds would raise around $100 billion globally during the course of the year. The actual figure was less than $10 billion, according to Partners Group's estimates. Many of the most successful funds investing today were raised in 2007 and 2008 and are closed to new investors.

In theory, then, the future of the infrastructure fundraising market should be bright. And the omens appear to be good: what else would explain the bullish sentiments of Antin Infrastructure Partners’ CEO Alain Rauscher at a recent media breakfast as he expressed conviction that his firm’s fund – which has raised €515 million to date – would reach its €1 billion target later this year? In Europe, at least, there still seems to be healthy demand for the asset class.

Faced with this, LPs must think carefully about how to access the infrastructure opportunity. The more sophisticated will have on their minds investing directly or taking advantage of some significant discounts in the secondary market. This won’t be possible for everyone – relying as it does on great networks and deal sourcing abilities.

One thing is for sure: how to access the infrastructure opportunity will be high on LPs’ priority lists during 2010.