Infra investors concerned about build-up in dry powder

The number of institutions seeking emerging market exposure is likely to double over the next three to five years, a study finds.

Appetite for infrastructure investment and emerging market exposure outpaces perceived investment opportunities, according to a study carried out by the Global Infrastructure Hub and Singapore’s EDHEC Infrastructure Institute.   

The survey, covering 184 infrastructure investors and advisors with about $8 trillion under management, found that 65 percent of investors intend to increase their allocation to infrastructure over the next three to five years, with the number of investors seeking emerging market exposure set to more than double over the same period. 

Respondents identified diversification, higher returns and inflation hedging as reasons for wanting to increase their weighting to the asset class. Investors were also seen as increasingly comfortable with long-term investment and less concerned about the lack of liquidity typically associated with infrastructure investment.

However, this growing appetite is fuelling concerns that available capital will far exceed the number of available opportunities, with 92 percent of surveyed investors expressing concerns about the build-up in “dry powder”. 

“In an increasingly volatile marketplace, it comes as no surprise that stability in regulation and earnings were listed as two of the most important factors for investors looking to invest in infrastructure,” said Chris Heathcote, chief executive of GI Hub, in a statement. 

The report also shed light on investors' evolving strategies for accessing infrastructure opportunities. Nearly 45 percent of respondents said they preferred direct investing, while 82 percent described close-ended, private equity-style infrastructure funds as outdated. 

“We are witnessing a significant shift in the appetite for infrastructure investment. The time is ripe to review and reset the structures, processes and approaches that underpin the sector to create a pipeline of viable projects to meet investor demand and the needs of society,” said Heathcote. 

As the market evolves, investors are looking for clearly agreed benchmarks to measure asset class performance, Heathcote added. A staggering 94 percent still believe no usable benchmark currently exists to assess infrastructure investment, the study found.