EUROPE - Swiss investment management firm Partners Group is currently seeing good infrastructure growth prospects, with more and more interest from pension funds for this asset class at a time when both developed and emerging markets are offering a large pipeline of deals.
Partners Group said both Europe and the US presented an interesting outlook at the moment, with several governments seeking to privatise their infrastructure assets as part of plans to reduce deficits, and utility companies adopting asset-disposal programmes to refinance their debt.
Talking to IPE, Michael Barben, partner and head of private infrastructure at Partners Group, said: "Infrastructure is still a very nascent asset class, but it has been growing significantly over the past years, with interest coming from institutional investors that are permanently looking to invest in assets that match their long-term liabilities."
He added: "Europe offers a large deal flow at the moment, especially in core operating, regulated assets, as large utilities such as Vattenfall, E.ON or RWE are seeking to dispose of some of their assets, and private capital will obviously be needed to finance such transactions.
"These assets offer an attractive risk-adjusted return and are often inflation protected, which makes them highly interesting for pension funds."
However, Barben stressed that, in spite of the large supply of brownfield projects across Europe, pension funds should be selective on the type of assets they acquire.
"Assets being sold by big utility firms may offer lower returns, but pension funds still seek to have access to them as they have lower transaction complexity than assets being privatised by several governments in Europe," he said.
Barben added that investments from pension funds would also be needed in the renewable energy sector if the EU wanted to achieve its mandatory targets with new wind and solar projects coming to the market.
Moving to emerging markets, Barben said the situation as different, as significant capital amounts are needed to satisfy huge infrastructure needs.
Greenfield projects are therefore seen as a priority due to the premium risk linked to the construction of new assets.
Barben identified Chile, Brazil, Mexico and India as attractive emerging market destinations for foreign private capital.
"Not every emerging market can satisfy the investment requirement of good regulatory system and political stability," he said.
"However, some others present an interesting profile for investors. Countries such as Chile and Brazil in Latin America have proven regulatory systems for infrastructure, offering index-linkage of revenues, while India has proven, model concession agreements for road projects."
On another note, Partners Group is "not comfortable" with China and Russia, where regulatory and political risks are too high, Barben said.
Earlier this year, the Swiss investment firm raised €500m from corporate and public pension funds, insurance companies and other investors for its infrastructure investment programme.