Political and regulatory risks are the chief concerns of infrastructure investors, according to Deloitte, with nearly 40% of respondents to its latest survey citing the former and 35% citing the latter.
In Europe, investors see regulatory risk at its highest in Iberia, Italy and the UK, against much lower perceptions of risk in the Benelux countries, France and Germany.
Overall, 92% believe regulatory risk has increased over the past five years, with 25% saying it has increased significantly.
Deloitte said 67% expect regulatory risk to increase over the next five years.
It surveyed 25 European infrastructure investors, including infrastructure funds and direct lenders.
The respondents hold more than £200bn (€253bn) in assets and ‘dry powder’.
Returns in all asset classes were lower than those reported in Deloitte’s 2013 survey.
More than 90% of respondents said their infrastructure investments had proved resilient over the last five years, with 8% saying performance had been mixed.
Investors have cut their target internal rates of return (IRR), with 43% predicting returns of 10-12% – a shift from 2013’s survey, when 41% were expecting returns of between 12-14%.
Jason Clatworthy, infrastructure M&A partner at Deloitte, said the infrastructure asset class “continues to perform strongly and provide stable, secure returns”.
“We expect this to continue through a period of more steady evolution in the infrastructure investors’ market over the years to come,” he said.
“There is clearly a wall of capital looking to deploy into this space.”
Infrastructure investors, Clatworthy said, are keen to see an increase in the deal pipeline, “both via the secondary sale markets and in the greenfield space should regulators of governments facilitate this more readily”.
Returns in the transport sector proved strongest, with ports, ‘other transport’ assets and rail/metro assets performing well.
Infrastructure services and telecoms assets were also among the highest performers.
IRRs were lowest for PFI/PPP assets, water and regulated utility assets.
Globally, interest was strongest in Western Europe, followed by North America and Australasia.
Interest in China has grown significantly from 2013’s survey, but interest in India, the Middle East and Africa remains low.
Within Europe, the most attractive locations for investors were the UK, the Nordic countries and Germany.
Since 2013’s survey, investors’ interest has also increased in Italy, Iberia and France.
Deloitte said infrastructure investors were stepping up their involvement in companies, with 95% saying they were ‘actively’ or ‘very actively’ involved in their investee companies.
Investors are most closely involved in strategic business planning, large project financial management and acquisitive growth decisions.
A focus on asset management has also resulted in significant improvement in corporate governance structures, Deloitte said, with more than 95% of investors rating the corporate governance of their assets as ‘good’ or ‘excellent’, up from 60% in 2013.
Investors are confident on the outlook for debt availability.
Sixty-five percent believe debt finance will remain steady over the next five years, 15% predict it will increase, and 20% forecast a decrease.