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Institutionals 'unlikely' to increase infrastructure allocations in 2012

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GLOBAL - Even institutional investors with dedicated infrastructure allocations in their portfolios are unlikely to step up investment this year, Preqin has said.

According to its recent study, institutional investors will approach the asset class with caution in the coming months due to the sluggish economic climate and volatile global debt markets.

Fundraising for infrastructure funds this year is therefore unlikely to exceed that of last year, Preqin said.

A previous Preqin study found that the infrastructure fundraising market saw the bulk of 2011 activity in the last quarter of the year, with seven funds closed, totalling $8bn (€6bn).

However, 38 infrastructure funds closed during 2011, raising $16bn, compared with the $31.8bn raised in 2010 by 41 funds.

Elliot Bradbrook, manager of infrastructure data at Preqin, said: "The private infrastructure market enjoyed a consistent year in 2011, both in terms of fundraising and deal flow.

"Although fundraising did not reach the levels seen in 2010, the majority of capital raised in 2011 was fresh capital (not secured prior to the downturn), showing that institutional investors are still looking to make new commitments to unlisted infrastructure funds."

Even though 2012 is unlikely to be a successful year in terms of infrastructure fundraising activity, the asset class could see more interest from the private sector as governments across the globe - particularly in Europe - unveil new plans to develop local projects, Preqin said.

At the end of last year, the UK Treasury announced that £6.3bn (€7.6bn) of funds - generated through ongoing savings from the current financial year - would be used for infrastructure projects, while a new national infrastructure plan would commit a further £5bn during the next spending review period.

Preqin also noted in its research that the increased availability of high-quality infrastructure assets would encourage institutional investors to invest in these funds in future.

As a result, 62% of institutional investors surveyed by Preqin in the second half of 2011 were planning to make infrastructure fund commitments in the following 12 months.

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