GLOBAL - Institutional investors are looking to invest increasingly in the North American infrastructure market as regulations have been relaxed, but a large amount of capital is still sitting on the sidelines, according to Preqin.

The company found that demand for infrastructure development and re-development in both the US and Canada has grown significantly over the past decade, but that the Public Private Partnership (PPP) sector was still largely underdeveloped.  

While local public pension funds have started to fill the gap - driving 35% of the total amount invested in this market - the fact that state governments in the US have traditionally shunned private investment in public infrastructure has limited the number of deals being made compared with other developed markets such as Europe, Preqin said.

However, because the US has relaxed regulation in this respect, the North American infrastructure market is likely to grow, the company said.

It also pointed out that the vast majority of institutional investors in the field are based in the US, investing mainly in third-party unlisted funds to gain exposure to infrastructure assets.

Direct investments, therefore, remain limited, with only 15% of US investors adopting such a strategy.

In 2010, the California Public Employees' Retirement System (CalPERS) acquired a 12.7% stake in London Gatwick Airport from Global Infrastructure Partners (GIP). The investments represented CalPERS' first direct-style investment.

In addition, US institutional investors focus mainly on their home market as they still lack knowledge of the infrastructure sector, while little more than half currently plan to invest further afield.

The North American market remains fragmented, however, as Canadian pension plans are more experienced than their US peers, with 47% of them considering direct investment in infrastructure assets over the coming months, Preqin said.

It added that Canadian investors were also more likely to invest abroad, with 65% seeking to adopt such a strategy.

Topics