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Wishful thinking

2017 could be a pivotal year for the world’s infrastructure markets. Here, we list what some of you are probably hoping to see in the wake of 2016’s surprises.

“Most year-end predictions are useless”, a New York Times investment column flatly observed last week.

Looking at 2016, we can only agree with the venerable daily: whoever had the foresight to bet £5 that the UK would vote to exit the EU, Leicester City win the country’s Premier League and Donald Trump earn a tenancy in the White House is now £15 million richer than at the beginning of last year, according to bookmaker estimates.

Still, the innate limitations of fortune-telling aside, infrastructure investors shouldn’t be denied the right to make wishes for the new year. Here’s what we think some of you are hoping to see in 2017.

‘CORE RETURNS WILL FINALLY HIT BOTTOM’

The last few years have not been kind to investment returns in the safest areas of the asset class – one reason presumably why infrastructure funds have not always performed as well as promised, as illustrated by an article by Simon and Jessica Wilde we published last year. It may be that 2017 will see them come back up, for instance if higher US interest rates start dampening investor appetite for core assets. But to tell you the truth, we’re not convinced this will happen. New investors, Asian institutions chiefly among them, are waking up to the asset class. Dedicated funds are getting bigger than ever. There’ll be more dry powder chasing assets, with no obvious reason to expect a major increase in supply. Boosting returns won't be easy in this context.

‘SOMEONE WILL FINALLY REALISE WE’RE GOING TOO FAR’

With the scarcity of run-of-the-mill assets unlikely to abate, more fund managers may be tempted to venture away from conventional infra sectors by targeting what we dub ‘hybrid’ assets. A number of blue-chip names have already made this their strategy, and it seems LPs are following them. It could be, however, that 2017 is the year when enough of them start to doubt that airport services, crematoria operators and cooking oil businesses truly are infrastructure assets to trigger a push-back. But we don’t think this is likely either. If anything, what used to be considered hybrid may drift closer to the core as fund managers work on bringing their risk profile back into line. Only if and when a faltering investment causes perceptions to shift will LPs, probably, show more reluctance to sign off.

'US TRANSPORT INFRASTRUCTURE WILL FINALLY DESERVE ITS NAME'

We’ve heard many of you complain about the wanting state of America’s transportation assets. And like yourselves, we spent much time last year trying to figure out what Donald Trump’s $1 trillion plan to revamp them would actually mean for the industry. We sensed some cautious optimism during last winter’s edition of our LP Summit in New York, and it is probably justified. US PPPs finally stand a chance to take off. But assuming the president-elect's programme stacks up, it will probably start yielding fruit some time after 2017. And in the meantime, given his views on climate-change issues, green energy could take a hit. Fortunately, these are likely to enjoy strong tailwinds in other markets.

'I WILL BECOME A ROCK STAR'

Or at least I will make my voice heard by voting in Infrastructure Investor’s 2016 Annual Awards. We can’t promise the rest, but we can assure you that your opinion will matter a great deal. You have until Sunday 8 January to cast your ballot – and hedge your bets.

Write to the author at matthieu.f@peimedia.com