Investors shun emerging markets

A new survey finds that institutional investors have shifted infrastructure allocations markedly away from emerging markets and towards developed markets over the last two years as they take fright at various risk factors.

A “steep increase” in respondents de-prioritising emerging market investing has been noted by the latest Infrastructure Institutional Investor Survey for Summer 2012, produced by placement agent Probitas Partners.

The survey reflects that there was “strong interest” in emerging markets in 2010, when 48 percent of those surveyed said they were interested in emerging markets because of their long-term growth potential. That figure has plummeted to 25 percent in this year’s survey.

At the height of interest two years ago, only 20 percent of respondents rejected emerging markets because of concerns about political, economic or currency risk. That figure has now more than doubled to 45 percent.

As well as “heightened risk”, the survey concludes that investors are anticipating less organic economic growth in emerging markets.

The survey also found that global infrastructure fundraising fell considerably during the first quarter of 2012 “due, in large part, to the Eurozone turmoil”.

Whereas 2011 fundraising was strong towards the end of the year as the annual total reached $20.8 billion, the first three months of this year saw just $2.9 billion of fresh capital raised. The most successful funds tend to be global and focused on developed markets.

However, the long-term outlook for infrastructure fundraising is positive. More than half of respondents (54 percent) said they intended to increase their infrastructure commitments in 2013, while only 2 percent are planning a decrease.

Moreover, infrastructure has rapidly claimed a place in its own right within institutional portfolios. In 2007, just 26 percent of respondents had separate infrastructure allocations, while 40 percent were making commitments from their private equity allocation. Today, 88 percent of investors have a separate infrastructure allocation.