Perhaps the most interesting development as it relates to the opportunities in the infrastructure investment market is the diversity of offerings institutional investors now have at their disposal to build infrastructure portfolios. In 2006, big, closed-end equity funds — often bank-sponsored — were dominant in the market, and while there are plenty of big closed-end funds still raising investor capital, open-end funds, joint ventures, listed infrastructure and segmented vehicles targeting specific sectors and strategies — alternative energy, transportation, power transmission, middle markets and P3s, for example — are increasingly available.
If the approach investors took in the 2006–2008 era could be called “getting their feet wet,” today’s characterization might be “kid in a candy store.”
The availability of an expanding set of opportunities is evidence of increasingly experienced investors allocating to these vehicles as well as an expanding diversity of objectives as more investors enter infrastructure investing. The combination of experience, a growing number of investors participating in the market and the diversity of objectives they bring with them is driving new opportunities to meet these demands.
“The answer to what are the most popular opportunities depends on the investor,” says Danny Latham a partner in First State Investments’ infrastructure business. “Each investor has its own requirements — whether it’s a public pension system needing to pay retirees, an insurance company with particular actuarial demands or a sovereign wealth fund tied to a certain aspect of a country’s economy — and they will seek out the strategies that best match their objectives.”
Many investors also have grown wise now that their maturing investments are providing tangible and measurable results, and the difficult days of the financial crisis and its aftermath also provided plenty of lessons learned. Today many infrastructure investors are in a better position to judge and negotiate investment opportunities.
“Investors can set checks and balances in today’s climate,” says Latham. “Terms such as key-man provisions, which account for the loss of team leaders over the course of an investment, and nondiscretionary investment control are more common today.”
But that is not to say investors don’t trust their managers in every instance — in many cases, where they have years of experience with an investment manager, investors do grant discretion to their managers to act on their own accord, and that can give the manager — and investor — an edge in executing on solid investment opportunities in competitive markets.
“Trust and track record,” explains Latham. “If investors know their manager, they are more likely to grant discretionary investment powers.”
The views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.
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Drew Campbell is senior editor of Institutional Investing in Infrastructure.
