Infrastructure investment options are evolving to meet investor demand. Each year, Institutional Real Estate, Inc. publishes a special report for the IREI: Infrastructure Strategies conference (formerly the i3 conference), and right now we are in the midst of writing and producing this year’s edition. The reports focus on the opportunities for infrastructure investment and the trends that drive these opportunities.
A lot has changed since 2006, when IREI hosted its first infrastructure conference. Before the global financial crisis, investors were sending most commitments to diversified closed-end infrastructure private equity funds with mandates to invest in a broad array of sectors and global markets. The lion’s share of capital was being raised for such funds; the promise of diversified exposure to what then was a new asset class for many investors was appealing — and there wasn’t much more offered in the market.
This style of fund remains a popular choice for many investors, but during the past decade the market for vehicles targeting infrastructure investment has matured and adapted to investors who have a better idea of what they want from their infrastructure investments.
For example, infrastructure debt funds were nowhere to be found in 2006, but today they are raising tens of billions of dollars from investors globally. These funds saw an opportunity to step in and provide infrastructure project financing. Previously banks had extended much of this product; however, new regulations in the wake of the financial crisis curbed bank lending, and infrastructure debt funds were born.
Another development in the infrastructure market since 2008 has been the rise of the DIY investor. Following the lead of many Canadian pension plans, such as the Ontario Teachers Retirement System and Alberta Investment Management Co., a growing number of investors are seeking to build internal teams capable of making and managing their own infrastructure investments and essentially cutting out fund managers and the fees that come with them.
Related to the DIY investor is the club concept — groups of investors that have turned the fund model on its head. Instead of a fund manager traveling to meet with investors on road shows and trying to get them signed up for their fund offering, investors are forming clubs of investors with similar objectives and goals for infrastructure investment and then interviewing investment managers.
But the latest evolution in the market for infrastructure investment has to do with timing. Some investors want investment vehicles with a time horizon that is a better match for assets they want to hold for the long term — open-end funds. These funds have an indefinite lifecycle where investors are generally free to come and go as they please. Some investors find this flexible timing appealing for investments they want to hold for decades rather than seven to 10 years, which is what the closed-end fund typically offers. Hybrid funds, meanwhile — those that offer a limited life but longer than a typical closed end fund — also are finding traction with investors that want to hold infrastructure investments for the longer term.
Much has changed in the 10 years IREI has been hosting infrastructure conferences — investors have more opportunities to choose from, and that will be reflected in this year’s infrastructure special report.
Drew Campbell is senior editor of Institutional Investing in Infrastructure.
