Investors are overpaying for core infrastructure and parts of the market are likely to be repriced in the future, Partners Group has warned.

In its latest Private Markets Navigator report, the investment manager said it is “very cautious” when evaluating “highly competitive, large-cap core transactions”.

The private markets investor said: “High investor appetite for private infrastructure continues to lead to record high valuations in core market segments and the underwritten equity returns for core assets remains at or below 8%.

“At first sight, investors justify paying these high valuations by pointing to the quality of the underlying assets and the long-term nature of infrastructure investment, a compelling argument in the continuous, low-yield environment.”

But, Partners Group said, “true relative value” existed outside this “crowded core space”.

Partners Group is particularly bearish on regulated utilities and “brownfield yielding assets” in developed markets. The report said these areas were vulnerable to “mean reversion” over the medium term.

The Swiss-headquartered group cited last year’s sale of Porterbrook, a company that leases railway rolling stock in the UK, as an example of infrastructure trading at “a high valuation”. The company was bought in October by Alberta Investment Management Corporation, Allianz and Hastings Funds Management.

Partners Group said: “This environment has been conducive or exits, allowing for various attractive sales and listings of companies, including several portfolios of assets that have been acquired in secondary market transactions.”

The fund manager drew similar conclusions for real estate, observing that a “wall of liquidity looking for yield” had created “a great market for exits”.

“Demand for stable, income-producing core assets has lifted asset valuations in most major markets past previous peaks, further skewing the risk/return profile,” the report said.

Partners Group therefore continues to “manufacture core properties that appeal to institutional investors seeking stable, income-producing assets in major markets.”