Probitas: LPs turning more to infrastructure

LPs are treating infrastructure as its own allocation separate from private equity or real estate, investing more in the sector and prefer standard ten year private equity fund structures, according to Probitas Partners’ 2008 Infrastructure Market Review and Institutional Investor Survey.

Nearly 40 percent of the 218 senior investment executives surveyed said they place infrastructure investments in their own separate allocation, or almost 15 percent more than in the same survey last year. Among investors who have been investing in infrastructure for more than one year, 66 percent place infrastructure in a separate allocation.

“I think it really proved that it [infrastructure] was becoming a separate asset class,” Kelly DePonte, a partner at Probitas, said.

He said that many LPs were originally testing infrastructure with temporary investments out of their private equity or real estate allocations. Now they are increasingly giving infrastructure its own allocation. 

The infrastructure allocation is also getting bigger. Probitas’ survey found that 63.5 percent of LPs plan on increasing their allocation to infrastructure next year (28.4 percent) or keeping it the same (35.1 percent). Only 4.6 percent said their allocation will decrease next year.

Probitas also found that more LPs (15.6 percent) expressed preference for funds focused on brownfield, or existing, projects as opposed to greenfield, or new development-type projects (3.4 percent). Among experienced infrastructure investors, the spread is even larger, with 29.1 percent favoring brownfields and only 1.8 percent favoring greenfields.

DePonte said some funds are shifting to a mixed brownfield and greenfield strategy, which was preferred by 16.2 percent of survey respondents and 21.8 percent of experienced infrastructure investors.

“Talking to investors, there have been some worries that there has been so much money focused on brownfields that they thought the prices were pretty high, so they’re trying to pursue funds with some focus on greenfields to get some of that exposure,” DePonte said.

The study found that 32.4 percent of experienced investors favour ten year private equity fund lives as opposed to 6.3 percent that favour evergreen structures, 13.6 percent that like fund lives with 12 years to 15 years and 4.5 percent who favour 15 years and longer.

DePonte said that in the US, uncertainty about exit valuations is “one of the biggest things that’s holding back evergreen structures from becoming more popular”.

The survey reflects the views of 218 senior investment executives from a wide variety of public and private LP interests across the US, Western Europe, Australia and other parts of the world.