Investors would be wise to seek stable assets that create value during the second half of 2016, according to Partners Group second half 2016 Private Markets Navigator report. Of course, if everyone agrees, then the competition for those investments gets intense and prices rise. Christoph Rubeli, co-CEO of Partners Group, comments:
“While global economic growth remains modest but solid, we expect to see increased volatility in capital markets going forward. In this environment, we are focused on finding more robust assets that can hold their value throughout economic cycles on the one hand, and that offer the potential to create value on the other.”
Growing demand for infrastructure assets is leading to increasing prices in the market for core investments, which is prompting Partners to seek out greenfield investments and brownfield value-add opportunities. And while the larger outlook for private infrastructure investments has remained mostly unchanged during the past six months, Partners Group notes there has been a “squeeze on expected equity returns,” due to increased competition for investments — in particular, large assets in markets with stable regulatory systems. The report notes:
“These include water utilities, energy infrastructure assets — electricity and gas transmission or distribution lines for instance — and availability-based social infrastructure. We have also observed very high valuations in high profile transport-related assets in developed markets.”
Partners Group warns investors that the relationship between investment prices and risk is becoming increasingly misaligned in some markets.
“These very high valuations illustrate our ongoing concerns of a fundamental disconnect between asset valuations and the inherent risks in certain infrastructure businesses.”
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.
