EUROPE – Infrastructure funds could triple their share of the Luxembourg real estate fund universe judging by current investor appetite, according to the Association of the Luxembourg Fund Industry (ALFI) real estate sub-committee.
Around 30 infrastructure funds currently make up 10% of the total real estate fund universe.
But Keith Burman, head of private equity and real estate at State Street global services, who chairs the sub-committee, said that figure could eventually increase to 20% or even 30%.
He said the association was already seeing "a lot of interest" from investors demanding a 5% yield over a 25 to 30-year period.
Specifically, infrastructure financing will emerge as a theme given the ubiquitous ageing of European and global infrastructure, he said.
"One of the reasons the market is more developed in Australia is because you have compulsory superannuation contributions," Burman said.
"Canada and New Zealand are bringing in similar schemes. If the same trend happens in other countries, infrastructure offers a long-term income stream."
In a subsequent panel session at ALFI's recent conference, Brian Chase, a principal at law firm Campbell Lutyens, said infrastructure had outgrown its perceived status as "the redheaded stepchild of real estate and private equity".
The former Carlyle infrastructure vice-president said: "Some real estate investors make good infrastructure investors, but few private equity investors have been. These are not assets you can easily put in a 10-year fund structure."
David Walker, from the climate change and environment division within the European Investment Bank, warned that more regulation could discourage long-term fund managers from entering the asset class.
"There is a need for new entrants, and I'm concerned that barriers to entry for new fund managers – because of their perception of the regulatory burden and capital requirements – means we won't get the new entrance we need for a healthy industry," he said.
Meanwhile, ALFI's annual real estate investment funds survey this week revealed a decline in single-country property funds (27%) but a continuing preference for office and industrial in multi-sector funds.
The survey, which covers around 90% of the Luxembourg regulated real estate fund market, also found a significant trend towards funds involving small groups of investors.
According to the survey, 82% of non-listed funds have fewer than 25 investors, compared with 3% that have more than 100 investors.
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