Cool winds blowing

Too much money coming into the asset class, competition and political uncertainty have prompted a majority of global institutional investors to keep their infrastructure exposure flat over the next year, according to a survey conducted by Probitas Partners.

Some 53 percent of respondents to the Infrastructure Institutional Investors Trends for 2017 said they would maintain their current exposure to the asset class. Those who said they would invest more in infrastructure – the top trend last year – decreased from 39 percent to 25 percent.

Pensions, consultants, insurance companies and funds of funds made up more than 66 percent of 40 survey respondents, with more than 50 percent based in North America and 23 percent in Western Europe and the UK.

While this is not the first year a majority of respondents said they would not increase their infrastructure allocations, a Probitas spokesperson told Infrastructure Investor that investors have not signalled caution about the asset class like this since the years following the global financial crisis.

The top worry investors had last year – that there is too much money flooding the asset class – remains unchanged in 2017, according to 68 percent of respondents. Concern that infrastructure is nearing the top of the cycle spiked to 62 percent, up 28 percent from last year. However, only 6 percent of respondents said their appetite for infrastructure investments has actually decreased.

Despite the excitement US President Donald Trump generated last year when he began talk of a $1 trillion infrastructure plan, 50 percent of survey respondents said his administration would have a minimal impact on the US market. Only 17 percent said his plan would have a strong impact, with 33 percent unsure what impact it will have.

There were mixed results for how Brexit would affect the UK and EU infrastructure markets. The largest group – 44 percent – said Brexit would have a small but negative impact on UK infrastructure. For the EU, 28 percent said Brexit would have a small but positive impact, while 30 percent said there would not be a positive impact.

Probitas has found that fundraising this year has not been heavily dented by investors’ fears and uncertainties. While the total fundraising amount likely will not reach last year’s $78 billion record, 2017 is on track to beat all previous years. As of June, Probitas said $32 billion had been committed to infrastructure funds.

Our fundraising figures, however, tell a slightly less optimistic picture, at least for the first half of the year. With $36.16 billion raised, H1 2017 is, on the face of it, the best half-yearly result ever. But take out the $15.8 billion raised by Global Infrastructure Partners’ third fund and it becomes the worst H1 since 2012.

Coming back to the Probitas survey, most investors – 71 percent – expect returns of 10 percent or less for brownfield, open-ended and debt funds. Expectations ranged more widely for value-added funds, with 48 percent saying returns should be between 10-12.5 percent and 40 percent saying 12.5-15 percent; for greenfield, 41 percent believed they should generate 12.5-15 percent returns.