GLOBAL – Institutional investors are keen on infrastructure as an asset class, but a number of hurdles remain, such as the scale of the projects, the search for the right opportunities and political risk, one expert has claimed.
Speaking at the IP Real Estate seminar in London, Georg Inderst, chief executive at Georg Inderst Advisory, said infrastructure was an attractive asset class for institutional investors such as pension funds and insurance companies due to the low-yield environment.
"Institutional investors used to see infrastructure as an asset class that would give them high-yield, inflation-linked products, long-term investments," he said.
"But, due to the low-yield environment we currently live in, infrastructure is more and more becoming a substitute for traditional asset classes that no longer provide the yield investors are looking for."
Inderst went on to say that some investors were seeking increasingly to invest directly in the infrastructure space as a means of maintaining control over the projects and reducing management fees charged by intermediaries such as fund managers.
However, he also warned that most institutional investors in greenfield infrastructure projects lack the necessary expertise.
"Institutional investors do not to have the experience to invest in the asset class, and that is something that needs to be build up over years," he added.
"Also, institutional investors are not banks. Banks are used to assessing credit risk, and although some banks have been trying recently to incentivise institutional investors to come into the infrastructure loan arena, this is going to be a much slower process."
Inderst also argued that most pension funds in the UK only lacked the internal resources to assess infrastructure projects properly.
According to him, unlike large pension funds, their smaller counterparts cannot afford to take large shares in projects.
Inderst finally identified politics as a major risk, arguing that some changes in policy across Europe in the past had been major pitfalls for investors.
"There is always a political element in infrastructure," he said. "If you take the energy sector only, governments have sometimes changed the rules in place, such as the feed-in-tariff for solar projects in Spain, for instance."