GLOBAL - Investors should consider infrastructure investments outside the core, large-cap markets to gain "equitable premiums for acceptable risks", according to a new report by Partners Group.
Similarly, private real estate markets have been affected by significant volumes of capital flowing into prime property. The report stressed that investors have focused too much attention on prime property locations and paid less attention to the premium prices that core properties command.
"As a consequence, demand for core assets has caused cap rate spreads between core and non-core properties to reach unwarranted multi-year highs, largely driven by risk aversion, economic uncertainty and fear on the part of investors," it said.
According to Partners Group, investment opportunities in private markets - including private equity, private real estate, private infrastructure and private debt - persist, in many parts of the world and across different sectors.
The company said that the alignment of interests between company management and investors would help private markets overall yield "significantly better" than public market investments over the second half of 2012.
Partners Group identified attractive opportunities in infrastructure where investment transactions outside the core, large-cap end of the market offered "equitable premiums for acceptable risks".
The firm, which pointed out that many institutional investors have increasingly looked to this private asset class in their search for yield, nonetheless conceded that the focus should be put on yielding brownfield assets with an inherent inflation link.
"With the dampened growth perspectives as well as the artificially depressed interest levels resulting in a low-return environment across all asset classes, both our research and past experience clearly suggest that private markets have been able to deliver a substantial outperformance in challenging times," the company stated.
In private equity, Partners Group suggested that economic uncertainty, reduced level of competition from established funds that had spent their capital and a lower level of bank funding would enable investors to take advantage of opportunistic deals and declining valuations.
In addition, the group believes that any period of stress created attractive entries into buying interests on the secondary market.
"New regulations, structural issues and increased portfolio management activities on the part of institutional investors are likely to generate additional secondary sales by banks seeking to meet capital requirements and other investors," it said.
