The keys to successful infrastructure investing today lie in “specialist know-how” – for example, where deals involve construction elements – and premiums obtained by investing in countries and regions perceived as risky but where strong fundamentals more than compensate for the increased risk.
This view is contained within Swiss private markets specialist Partners Group’s latest “Navigator” report for the second half of 2013, which says that infrastructure “still ticks the right boxes” for investors concerned about inflationary pressures and a lack of growth.
Despite the positive overall picture, the report notes the return pressure on assets perceived as stable in developed markets and questions whether risks are being adequately compensated for. In addition, it says it is important to ponder the day when “the tailwind of falling real rates no longer persists”.
In this environment, Partners Group suggests, it is vital to focus on capturing premiums and value creation aspects that can be achieved “independent of broader macroeconomic developments”.
In a “relative value matrix” for private infrastructure, Partners Group identifies eight market segments in Asia/emerging markets which have a ‘green’ rating – meaning they offer high relative attractiveness. Both North America and Europe have only five green ratings each.
The most favoured segments in Asia/emerging markets are social infrastructure and renewable power. Partners Group is itself currently working with a local partner to develop Soleq, a pan-Asian solar platform targeting installed capacity of 300 megawatts by the end of next year.
The relative attractiveness of Asia/emerging markets extends to listed infrastructure, boasting five segments with green ratings compared with three in North America and just one in Europe.
Transport is favoured in Asia/emerging markets listed infrastructure. “Airports in particular benefit from strong demand for air travel driven largely by the growing middle class who increasingly find air travel more affordable,” the report notes.