GLOBAL - Sovereign wealth funds (SWFs) will take over from private equity as they exercise their financial weight by acquiring distressed assets and companies, according to Ernst & Young's global real estate report.

Liquidity and the search for higher returns made direct and indirect investment in real estate "a natural for them", and could include corporate takeovers.

Looking globally, SWF investments would accelerate yield compression in emerging markets, suggests E&Y.

"Sovereign funds are typically among the first investors into emerging markets and are known to be fast decision-makers that can move quickly to tie up assets," said the report.

BRIC markets, now receiving their "second and even third wave" of institutional capital, will this year be involved in "mega-deals" involving several types on investors collaborating - and risk-sharing - to invest in specific markets or regions.

Meanwhile, Ernst & Young has lost none of its enthusiasm for infrastructure, pointing to recent California Public Employees Retirement System (CalPERS) allocations in that sector.

"The market potential for private investment in large-scale infrastructure is enormous," said the report as "ballooning budget deficits" in the US and emerging economies' need to build infrastructure in line with their economic growth would create greater demand for private capital.

Although infrastructure is not yet a mature market, "the infrastructure the need for a massive infusion of capital is undeniable, and even the credit crunch hasn't dampened investors' appetites", said the report.

E&Y also forecast this year would see the first infrastructure REIT.

"Look for pension funds to lead the way as more of them consider infrastructure as an alternative asset class — loosely tied to real estate — through which they can invest capital over the long term at fairly attractive risk-adjusted returns."