LP Perspectives: West side story

Limited Partners invest in infrastructure to seek extra yield, something which, amid rising competition for assets, becomes harder to secure in Western Europe. The continent is also struggling to get its growth engine started again, while in emerging markets huge infrastructure needs and better economic prospects could arguably generate an appealing set of opportunities.

So it’s perhaps a surprise to see that Western Europe, with 65 percent of votes, tops our league table of most favoured fund investment regions this year. Not far behind, with 64 percent, is North America, followed by multi-region and global funds. What that means is fairly straightforward: notwithstanding their varying macroeconomic, regulatory and competitive fortunes, developed markets still represent the destination of choice for most LPs.

We’re only invested in infrastructure investments in the UK so far,” says Finnie of Strathclyde. “But we’re looking to expand geographically, probably next year. We’ll be considering other European countries as well as North America.”

A question exclusively focused on developed markets tells a more nuanced story – and reveals a shift in attractiveness between the asset class’s most established regions. The US and Canada proved to be much more popular than Western Europe (excluding UK), with 41 percent of the vote against Europe’s 20 percent. Southern Europe fared reasonably well (at 16 percent), followed by developed Asia (13 percent) and the UK (11 percent).

“Europe is still interesting but more for small or mid-market core-plus assets than large ones,” says Yielco’s Fleischhauer. “So far the US has been disappointing regarding deal flow but it could be a very strong market within the next three to five years. This would be driven of course by the whole energy revolution going on but also by a broader impetus to modernise the country’s obsolete infrastructure.”

Our analysis of sectorial appetite seems to confirm this, with energy (83 percent) trumping water (55 percent) and renewables (51 percent) as LPs’ most popular areas to invest in. Then come rail and road (49 percent), social infrastructure (47 percent) and airports and ports (41 percent). Waste and telecoms and industrials come behind but still garner a significant part of the votes (respectively 38 percent and 34 percent). This indicates that despite preferences in principle a large number of investors remain open to investing across a range of sectors, depending on the opportunity.

A close look at emerging markets meanwhile shows comparatively strong appetite for Latin America (elected by 30 percent of respondents as the most attractive developing region), followed by emerging Asia ex-China and India (24 percent), Central and Eastern Europe (19 percent) and Africa (18 percent).

Interestingly however, investors think exposure to these regions will not always be achieved through investing in local vehicles: only 12 percent of LPs seem tempted to back Latin America-only funds, 11 percent Central and Eastern Europe-only funds and 6 percent Middle East/Africa only-funds. The exception here seems to be Asia-Pacific-only vehicles, in which 24 percent of our respondents expressed an intent to invest next year.