Photo by: Duane Daws
Western Europe remained the most popular geography for infrastructure investors, followed closely by North America and Australasia, while investor interest in markets such as India and China has dropped, a recent study by advisory firm Deloitte has found.
Deloitte surveyed 22 infrastructure funds and direct investors, representing about 50% of London’s infrastructure investment community, for its 2013 Infrastructure Investors Survey.
“Infrastructure investors have weathered the economic downturn by focusing on core infrastructure assets in ‘safe-haven’ countries,” the firm pointed out.
However, it noted that, increasingly, there was more appetite to deploy capital outside of Europe, with the exception of India and China.
“Former darlings of the global economy, these jurisdictions appear to have become increasingly less attractive to investors as their high economic growth of recent years has slowed,” Deloitte said.
The firm further explained that the increase in investment focus outside of Europe had been driven by concerns relating to the Eurozone crisis, which had increased the inherent country and currency risk, principally for southern European countries such as Italy and Spain. These countries were also commonly perceived as being “closed markets”, which meant that many infrastructure investors have largely steered clear while they assess when the bottom of the market for these jurisdictions will come.
The survey also found that the level of focus on Africa as an infrastructure investment destination was greater in 2013 than it had been in 2010.
Meanwhile, infrastructure investors were also making use of dedicated asset managers to deal with the economic downturn.
The study found that 41% of infrastructure funds have recruited dedicated asset management teams, which now typically comprised more than one-third of their total workforces.
“The key to funds’ strong performance in recent years has been a significant investment of resource in dedicated asset management teams, as they look to improve their performance through value enhancement,” Deloitte infrastructure mergers and acquisitions (M&A) partner David Scott said.
The study found that 70% of infrastructure investors were achieving or exceeding their targeted initial rates of return.
“Many commentators were sounding the death knell for infrastructure as a specialised asset class a few years ago. In fact, infrastructure investors have emerged stronger and wiser from the downturn and momentum is building as new investors look to enter the market,” Deloitte infrastructure M&A partner Jason Clatworthy commented.
“However, there is also a lack of assets coming to market as disposals by major European utilities and governments have yet to transpire. This is leading to increased competition across the sector,” he said.
Scott added that the study found that the regulatory environment and political risk continued to concern investors.
“These have become harder to navigate in the past few years and the expectation is for regulatory regimes, especially in Europe, to become more challenging to predict in the coming years,” he said.