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Where are we now – The State of the Art of Infrastructure Investing
From 2004 through 2017, fundraising for unlisted infrastructure experienced remarkable growth, moving from a negligible 2 billion USD in 2004 to a peak of 78 billion USD in 2016. Moreover, despite the turbulence brought on by the financial crisis, infrastructure proved to be a very resilient asset class.
GLOBAL INFRASTRUCTURE FUNDRAISING 2004-2017
The ultra-loose monetary policies put in place by central banks after the collapse of Lehman Brothers in 2008 and the consequent compression of yields have contributed to increasing interest in this asset class among investors.
With some differences among the sub-classes of this asset type, infrastructure has offered investors relatively good yields. Data provided by Preqin indicate that the performance index for infrastructure reached 197.5 in December 2016 from a basis of 100 in December 2007. The corresponding figure for the All Private Equity Index was 192.7 in 2016, while it was 116.5 for the S&P Global Infrastructure Index.
IS INFRASTRUCTURE PAYING OFF INVESTORS?
Investors’ appetites for this asset class seem to indicate a stable interest in infrastructure. A survey prepared by IPE Real Assets in October 2017 indicated that 75% of the institutional investors studied were allocating the same proportion of assets to infrastructure as in 2016. Moreover, IPE Real Estate Assets’ Top 100 ranking of the world’s largest infrastructure investors shows that the average allocation to infrastructure is approximately 3% out a total of about 360 billion USD in investments.
Clearly, the use of such a huge amount of money on this asset class has important consequences. Preqin data indicate that the “dry powder” available to infrastructure asset managers reached a record 156 billion USD in June 2017. Of this amount, 118 billion USD related to North America and Europe.
GLOBAL INFRASTRUCTURE FUNDRAISING: DRY POWDER
Furthermore, transaction prices have steadily increased since 2008. J.P. Morgan estimates that the average yield for core infrastructure investments declined by 3-3.5% from 2010 to 2015 although valuations are not equally expensive in all infrastructure sectors.
Overall, the data indicate that the industry is undergoing a process of change as it matures. This trend poses important questions to investors and asset managers.
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About the author:
Stefano Gatti is the Antin Infrastructure Partners Chair Professor of Infrastructure Finance and Professor of Practice in Finance. He is the Director of the Full Time MBA and former Director of the International Teachers’ Programme at SDA Bocconi School of Management. His main area of research is corporate finance and investment banking. He has published in these areas including publications in the Journal of Money, credit and banking, Financial Management, the Journal of Applied Corporate Finance and the European Journal of Operational Research. Professor Gatti has published a variety of texts on banking and finance areas and has acted as a consultant to several financial and non-financial institutions and for the Italian Ministry of the Economy, the Financial Stability Board, The InterAmerican Development Bank, the Asian Development Bank and the OECD/Group of G20. He is financial advisor of the Pension Fund of Health care professions, member of the compliance risk committee of Deutsche Bank and member of the Board of Directors and board of auditors of Italian industrial and financial corporations.
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