Investors in the infrastructure asset class have traditionally focused on opportunities in the developed markets of North America, Europe and Australasia. The absence of developed infrastructure, and the inexperience of many investors in emerging markets, has led investors to favour the more stable and predictable western markets. However, as the infrastructure asset class grows and matures, increased competition in these developed regions is causing investors to look elsewhere for more attractive investment opportunities. As investors become increasingly experienced and are expanding their available resources for infrastructure investments, they are becoming progressively capable of incorporating emerging market investments within their infrastructure portfolios. This is also the case for fund managers, as there is a growing number of emerging market-focused funds available for institutional investors to consider.
The high risk/high return characteristics of emerging market opportunities can be an attractive investment option for infrastructure investors. Those active in these regions are looking to capitalise on the huge demand for infrastructure development in the emerging markets, and the potential for lucrative returns. Furthermore, investors are increasingly looking to achieve both geographic and strategic diversity within their investment portfolios.
Preqin is currently tracking 591 infrastructure investors that will consider opportunities in emerging markets, representing 30% of the total infrastructure universe. These investors have an average AUM of $70bn, and have an average infrastructure allocation of 6.6%. Of the investors active in emerging markets, 24% are based in North America, 23% are based in Europe, 28% in Asia and 26% are located outside of these core regions. The most commonly targeted region for investments within the emerging markets is Asia, with 64% of emerging market investors open to opportunities there. Twenty-seven percent target the Americas and 20% target Africa. Thirty-four percent of investors target emerging markets generally, not specifying a preferred region.
Private Sector Pension Funds are the most active infrastructure investors in emerging markets, making up 15% of the total, closely followed by Public Pension Funds, which account for 12%. Insurance Companies and banks are also prominent, both accounting for 11% of all active emerging market investors.
In terms of route to market for infrastructure investors looking to access emerging markets, commitments to unlisted funds remains the most common, with 83% of investors utilising this strategy. Forty-five percent will make direct investments in the region, and 14% will invest via listed infrastructure vehicles.