European investors with £200 billion ($289 billion; €254 billion) in assets and dry powder surveyed by Deloitte have found infrastructure to be resilient over the last five years, but have noted that returns have compressed while political and regulatory risks have increased.
The survey, which takes in 25 European fund managers and direct lenders, gives infrastructure strong marks when it comes to resiliency, with 92 percent of respondents finding the asset class performed well over the last five years. That resiliency, however, does not exclude a widely observed returns compression, with 43 percent now expecting IRRs of between 10 and 12 percent for the asset class compared to 12 to 14 percent in Deloitte’s 2013 survey.
Speaking of performance, transport assets topped the list, followed closely behind by pipelines, telecom assets and other infrastructure services. PPP/PFI assets offered the lowest returns, although even the strongest performers have experienced return compression, Deloitte noted. Renewables have also emerged as a popular asset class with investors.
Political and regulatory risks are now front for investors, with 38 percent citing political risk as their biggest concern, followed by regulatory risk at 35 percent. Tellingly, 92 percent of those surveyed believe regulatory risk has increased over the past five years, with a quarter of investors saying it has increased significantly. What is more, 67 percent of investors expect regulatory risk to further increase over the next half decade.
Geographically, investors continue to target traditional markets like Western Europe, North America and Australasia, although interest in China has grown significantly since Deloitte’s 2013 survey. Interest has also increased in crisis-hit southern European countries as well as France.
Finally, an overwhelming majority of investors are now active asset managers, with 95 percent saying they are “actively or very actively involved in their investee companies”.