ADIA warns on rising infra prices, lower returns

The sovereign fund says heightened competition has pushed investors towards emerging markets and blurred boundaries with private equity.

Last year’s upsurge in investor interest in infrastructure is prompting sovereign investors to look at investment platform opportunities and focus on asset management, the Abu Dhabi Investment Authority suggests in its latest annual report.

ADIA, which has an estimated $828 billion under management, looks to have between 1 percent and 5 percent of its assets invested in infrastructure. The asset class has been managed alongside real estate, which accounts for up to 15 percent of the fund’s portfolio, since the two departments merged six years ago.

In the report, ADIA noted a drastic change in the market since then, owing to an “an upsurge in investor interest and increased capital flows”. In 2016, it said, “new records were set for capital raisings in the managed funds market resulting in increased competition for assets across sectors and geographies”.

This has led to steadily rising prices and pressured returns, which were continuing to follow the downward trend initiated over the last three years. “Two consequences of this were an increased push by infrastructure investors into emerging markets and a blurring of the lines dividing infrastructure from private equity,” ADIA observed.

Despite the heated conditions, however, the fund was keen to emphasise it had not stayed idle in 2016, teaming up with Singapore’s GIC to plug $230 million into India developer Greenko Energy Holdings and injecting £621 million ($802 million; €707 million) into the UK’s Scotia Gas Networks.

In short, ADIA explained, the team has been “targeting a variety of investment platforms as an alternative to auctions,” the fund said. “Going into 2017, the prospect of a political shift in favour of fiscal policy over monetary policy, with a particular emphasis on infrastructure spending, may help to underpin further growth in the year ahead.”