Infrastructure funds typically target a mix of project stages in order to maximise portfolio diversity. However, those vehicles making greenfield investments are often those that are willing to take on more risk. Greenfield investment opportunities are those at the pre-operational or construction phase of development, without an established income stream. Of course, greenfield opportunities come with inherent risks. Problems such as construction delays, cost overruns and insufficient demand for the asset upon completion are all risks associated with greenfield developments. However, these risks are coupled with the potential for greater returns and often allow for greater influence on the way the project is executed.
Preqin’s Infrastructure Online is currently tracking 105 funds on the road investing in greenfield projects; this is less than the combined 130 unlisted vehicles currently in market willing to invest in brownfield and secondary stage assets. This suggests that most infrastructure GPs are more willing to invest in more mature assets as opposed to greenfield developments in the current market, although many managers will also look to greenfield opportunities as a means of diversification. Most funds following a strategy focused on greenfield assets alone tend to be those investing in the renewable energy or social sectors (including PPP/PFIs).
Looking at the current unlisted infrastructure fundraising market in more detail, just 8% of funds invest solely in greenfield opportunities, while 62% invest in greenfield assets alongside other stages of development. An example of a fund targeting greenfield assets exclusively is Lloyds Bank UK Infrastructure Partners. The vehicle is targeting £250mn for investment in developmental social infrastructure projects in the UK. Other players in the infrastructure market such as Energy Capital Partners, via its unlisted vehicle Energy Capital Partners III, target projects at both greenfield and brownfield stages of development. The fund, which is aiming to raise $3.5bn in aggregate capital targets projects within core economic infrastructure such as energy, natural resources, renewable energy and utilities solely within North America.