In June 2011, Preqin interviewed over 70 alternative investment consultants from around the world with over $1.5 trillion collectively in alternative assets under advisement. With the number of unlisted infrastructure funds seeking capital at a record level, fund managers must ensure they are in tune with the preferences and opinions of investors and their consultants in order to successfully raise new funds. As such, Preqin asked investment consultants about their strategic and geographical preferences, future investment plans and the key issues currently facing the infrastructure asset class.
Over half of investment consultants (58%) and their clients are looking to commit more capital to unlisted infrastructure funds in 2011/12 compared to 2010. This is encouraging for fund managers; none of the investment consultants participating in Preqin’s study are planning to commit less capital to infrastructure over the next 12 months compared to the previous year. In fact, 22% of respondents said that they are planning to significantly increase their levels of commitment.
Geographically, Asia was cited by half of infrastructure investment consultants as presenting attractive investment opportunities over the next 12 months. This is unsurprising given the growing demand for infrastructure development in the emerging Asian economies. Europe is likely to remain the focus of the majority of infrastructure investment over the short-to-medium term, with 47% of consultants stating that the region will offer attractive opportunities over the next 12 months, while the level of private investment in North America looks set to continue to increase with 37% stating that there will be good chances to invest there during the next year.
Emerging markets outside Asia are also of growing importance to the infrastructure sector. A significant proportion of investment consultants (42%) stated that they view South America as an attractive region in which to invest in the coming 12 months.
In terms of important issues facing the asset class, management fees and other terms and conditions are of greatest concern to investment consultants, with 18% viewing this as the key issue in the current market. Other key issues that could potentially discourage investment consultants from recommending investments in infrastructure funds include liquidity, industry regulations and asset valuations. 16% of consultants believe the illiquid nature of infrastructure investments is an issue, while 11% cited both regulations and asset valuations as a problem.
This sentiment towards fund terms and conditions closely resembles that of the investors surveyed in our recent Preqin Investor Outlook: Infrastructure, a study of the opinions of leading LPs in unlisted infrastructure funds. 62% of investors surveyed believed management fees to be an area of concern, while 53% highlighted carry structure levels as a problem and 42% had issues with fund manager hurdle rates. However, the proportion of investors that highlighted each area as an issue has decreased since a survey conducted in 2010, suggesting that the alignment of LP and GP interests has improved in the infrastructure asset class over the past year.