Infrastructure - Low Risk, Low Returns?

by Richard Stus

  • 01 Sep 2009
  • INF

The reason for many investors to establish a separate allocation for infrastructure investments is due to the markedly different risk return profile that is exhibited by the asset class in comparison with other private equity fund types such as buyout. However, do infrastructure funds automatically shoot for lower returns, with a much lower risk profile?

Preqin’s database features a significant proportion of infrastructure vehicles (24%) that are targeting returns between 10% and 13.9%, which is relatively low in comparison with the targeted returns of other alternative assets funds. A further 24% are targeting between 14% and 17.9%. The biggest data point is for firms targeting between 18% and 21.9%, which although is still shy of the returns regularly sought by other alternative asset managers, is still a relatively high return that would satisfy a significant proportion of investors. Only 17% of funds in our sample were seeking returns at a level comparable with private equity buyout funds at 22-30%.

Although the relative immaturity of the asset class means that the majority of vehicles are not yet at a stage where their performance can be viewed in an especially meaningful way, the returns that are available are encouraging, with only a single fund on the Preqin database showing a negative IRR, and 40% of vehicles displaying a performance exceeding 18% IRR.

This blog is an excerpt from Preqin’s recent infrastructure research report - A Pause in the Growth Story?

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