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Report shows increasing institutional demand for infrastructure

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GLOBAL - Institutional investor appetite for infrastructure is on the way up, with $14bn (€11bn) raised for unlisted funds in the third quarter this year, according to Preqin.

But recent deals also show that larger European pension funds have been increasingly willing to diversify their investment in the asset class.

A recent report by Preqin found that, even though just six unlisted infrastructure funds held a final close in the third quarter, investors were still committing capital to such vehicles.

"The aggregate capital raised by funds holding a final close in Q3 2012 was 48% lower than in Q2, but the capital raised by funds holding an interim close was 33% higher," the report said.

Elliot Bradbrook, manager of infrastructure data at Preqin, said investor appetite for infrastructure funds was strong and looked to continue in the coming year.

"However, institutional investors remain extremely cautious when making new fund commitments in the current market environment," he added.

"It is therefore unsurprising that more infrastructure funds are holding interim closes in 2012 as opposed to final closes, and we can expect this trend to continue going forward.

"The fundraising market is very congested, and, with investors following a more conservative investment strategy, it is likely many funds will be on the road for an extended period of time before reaching a final close."

However, recent deals made by large European pension funds in the debt arena suggest some institutional investors have been increasingly willing to diversify their investment strategy when it comes to allocating capital to infrastructure projects. 

Last month, the Dutch asset manager APG made its first-ever inflation-related loan for a local road-building project, saying it expected the market to develop into a new asset class.

This comes at a time when European banks, which have traditionally been the main lenders for infrastructure projects, have been compelled to sell of their non-core loan portfolios as watchdogs look to tighten up regulations for banking institutions with the upcoming Basel III framework. 

A previous survey by Preqin found that the number of unlisted infrastructure debt funds had nearly doubled since 2010, boosted by surging demand from institutional investors.

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