IPE survey uncovers moderating appetite for infrastructure

New research from IPE and Stirling Capital Partners suggests appetite for infrastructure is moderating among institutional investors.

The second IPE Institutional Infrastructure Survey reveals a doubling in the number of investors recently considering infrastructure but choosing not to invest, from 11.1% in 2013 to 21.2%.

The survey of 77 investors from 26 countries, conducted in October and November of this year, recorded a drop in the proportion of investors with “definite plans” to invest in the future, from 13.9% last year to 6.1%.

But the proportion that “may invest in infrastructure in the future” remained stable at just above 63%. Overall, the survey shows a slight drop in the proportion of respondents investing in the asset class, from 65% last year to 57%.

The most highly cited reason this year was “unsuitability of investment structures and vehicles”

Existing allocations to the asset class look set to be maintained over the next 18 months with 59.1% of respondents expecting a rise (63.2% in 2013), 36.4% expecting limited movement (31.6% in 2013) and 4.6% predicting a drop (5.3% in 2013).

The survey revealed that illiquidity is becoming less of a perceived obstacle to infrastructure investments. More than half (55.8%) said liquidity was important in an infrastructure portfolio, compared with 45.6% last year. One-quarter (25.6%) said liquidity was “somewhat important”, down from 31.1% in 2013, although the proportion that said illiquidity was “very important” rose from 11.1% to 14%.

For those not invested in the asset class, the proportion that cited illiquidity as the main reason fell from 48.6% in 2013 to 30.3%.

The most highly cited reason this year (at 33.3%) was “unsuitability of investment structures and vehicles”, up from 14.3% in 2013.

Not being “persuaded by risk/return or diversification properties” rose from 25.7% to 30.3%, but being “too small to make a meaningful allocation” fell from 31.4% to 24.2%.

A “lack of internal resource to undertake due diligence” rose from 25.7% to 30.3%, while “fees” fell from 20% to 15.2%. A “lack of suitable external advice” remained stable (from 8.6% to 9.1%).

The survey suggests more investors are placing infrastructure within ‘alternatives’ portfolios. The proportion taking this approach was the biggest at 33.3%, up from 28.6% in 2013. Last year’s top answer was a “standalone” allocation, but this has dropped from 32.1% to 31% in this year’s survey.

There was also clear preference for infrastructure equity versus infrastructure debt. Two-thirds (65.9%) are invested in the former (up from 43.8%), 9.1% in the latter (up from 4.2%), and 25% in both (down from 52.1%).