Attractive sale conditions, higher valuations and competition has prompted Partners Group to sell infrastructure assets and portfolios.
Partners Group, which published its latest private markets outlook, said: “Institutional appetite for infrastructure investment shows no sign of flagging, fuelling competition for assets and supporting high valuations, while also pushing down expected returns.
“To benefit from the attractive selling conditions and to capture outsized returns, we have thus increased our focus on portfolio exits.”
IPE Real Assets recently reported that investment activity in infrastructure was strong in 2017, but down on the previous year. However, 2018 is expected to see more capital pumped into the sector.
Data provider Preqin expects final capital raising figures for 2017 to set to be the higest ever and recently estimated that infrastructure funds had a record amount of ‘dry powder’, at $160bn (€131bn).
As reported by IPE Real Assets, yields and return expectations are being squeezed, but investors are still seeing value.
Partners Group said investors’ return thresholds were being lowered and underwriting assumptions were becoming more aggressive.
The company said: “In general, we believe higher levels of assumed risk are not adequately reflected in current return expectations, especially when interest rates in many economies appear to be rising.” While this makes it a challenging investment environment, it is good for portfolio realisations, it added.
Partners Group has been a visible seller of assets. It recently sold its 21% stake in the Victorian Comprehensive Cancer Centre in Melbourne, Australia, to AMP Capital for an undisclosed sum.
The company has also disposed of its 43.83% stake in Silicon Ranch Corporation – which it bought in April 2016 – to Royal Dutch Shell for up to $217m.
Commenting on the sale of Silicon Ranch, Todd Bright, partner and head of private infrastructure at Partners Group Americas, said: “With our support, the company has been able to execute its growth plan faster than expected and we are taking the opportunity to divest our equity stake to a strategic investor ahead of the original investment plan.”
In its market outlook report, Partners Group said it routinely developed “exit scenarios based on different exit windows for all its direct assets” to remain “flexible over the course of an investment”.
The investment manager continues to invest. It recently acquired a 45% equity stake in Borssele III/IV, a construction-ready offshore wind farm in the Netherlands.
“On the investment side, we prefer to build core assets or expand platforms in the renewable energy, communications, and energy infrastructure sectors, where we see transformative growth,” the report said.