“Infrastructure as an alternative asset class has grown dramatically over the last 15 years with LPs increasing or creating new allocation to it. Traditional infrastructure assets operate in regulated markets providing stable predictable cash flows with upside reduced in favour of stable capital growth.
As we move into 2015 governments face many challenges in stimulating their economies and many will either look to infrastructure (capital account investment) projects as a means of kick starting their economies out of recession or may be considering selling some of the state-owned assets for the first time to generate cash to meet deficits. From an investor perspective the significant amount of dry powder in the market means that despite new assets/opportunities arising it is likely there will continue to be a broadening of the definition of infrastructure towards quasi-regulated assets, the taking of construction risk, and a move towards Eastern Europe and customer risk in order to deploy the capital.
Other emerging themes are direct and co-investment by LPs, which is gaining popularity. However the cost of building an asset management team and accessing deal flow means that taking up co-investment rights will continue to prevail for all but the biggest LPs. Also, as the banks have reduced their appetite for lending, shadow banking has emerged to fill in the gap, and in the infrastructure class several funds have had successful first closes for inflation-linked debt from infrastructure assets indicating an appetite from LPs in this area.
As Europe seeks to navigate its way out of the recession, infrastructure will be one of the main beneficiaries as it offers exciting opportunities for 2015 and beyond.”
James Brasher is group head of products and head of Channel Islands at fund and corporate services firm Alter Domus.