Few investors understand infrastructure's risk/return profile, says IPD's Mark Weedon. But for those in the know, the sky's the limit.
As investors queue up for Stansted, BAA's high court tennis with the Competition Commission is nearly at a close. Airports, it seems, are one piece of infrastructure investors do understand. But there's a world of opportunity out there.
The term 'infrastructure' can include dozens of potential investments: from transport, water, waste and telecoms through to social infrastructure, such as hospitals, schools and prisons.
But despite the volume of investors out there with cash, few fully understand the risk/return profile of this sector.
It's a two-way process, of course, and many of those responsible for large infrastructure projects - not just sellers - need to know how to attract available finance.
Both are things we're hoping to change following IPD's Alternative Real Estate Investment conference next Tuesday, at which the Nichols Group is leading a session on Infrastructure Investment.
As with conventional property, it's possible to invest through a specific infrastructure fund or directly, depending on the level of confidence. Similarly, investing in different phases of a project can suit different investors.
The construction phase typically offers higher returns, though with added risk. Though risk is often perceived as being much higher than the reality, it remains an area funds are wary of.
The operational phase of a regulated asset is more suited for low-risk, long-term returns. HS1 is a well-known example, with the line bought by two Canadian pension funds - Borealis Infrastructure and the Ontario Teachers' Pension Plan - for £2.1bn (€2.6bn) in 2010, which was 25% higher than expected.
There are similar deals being done around an array of private finance initiative (PFI) projects. PFI's popularity with successive governments is that it enables governments to fund development off their balance sheets. With the government determined to reduce national debt, the opportunity here is obvious.
Estimates suggest ministers may be looking for around £40bn per year over the next 10-20 years, with at least half coming from an array of non-traditional investors, such as pension, insurance and sovereign wealth funds.
The government has historically funded the construction phases of schemes, before selling them for the operational phase, but this public money no longer exists. As a result, we're likely to see private investors take equity in projects in return for initial investments.
EDF Energy, responsible for powering the Olympics site, is one such example. On a smaller scale, councils across the UK outsource their waste recycling plants.
In 2009, a 25-year PFI contract launched a £631m construction programme, creating a network of state-of-the-art recycling and waste management facilities across Greater Manchester. It was the first initiative of its kind in the UK and the first time the technologies had been built on such a scale.
In all these cases, the investor would get equity in the special purpose vehicle (SPV) created around the project.
Aside from London's airport debate, the Thames Tideway Tunnel is the capital's next major infrastructure project. With costs currently estimated at around £3.6bn, it will be an unprecedented opportunity for private sector investors to invest in a SPV that will construct it.
Peter Hansford, an executive director of the Nichols Group and an adviser to HM Treasury through Infrastructure UK, welcomed more education for investors. "Getting a better handle on the construction aspect of large schemes and more effectively communicating the associated risk offers us a silver bullet to the finance we need," he said. "Cash into the construction phase unlocks everything else, and this is the least mature area of the sector."
As traditional property continues to deleverage and effectively reset its cycle, the certainty of income linked to rail fares, utility bills or road tolls looks inviting.
It's not about one or the other, of course. But investors increasingly want a portfolio of investment classes, and infrastructure is a viable alternative. But, every situation needs bespoke consideration, and those seeking investment effectively have to paint a picture for each investment situation based on a common set of colours: no two projects are the same.
But if the investment community can better understand the opportunities around us, there's no reason that the sky has to be the limit.
IPD's Alternative Real Estate Investment conference takes place next Tuesday, 23 October in London. Mark Weedon is head of alternative investments at IPD