Wealth Managers Investing in Infrastructure – February 2013

by Claire McNeil

  • 12 Feb 2013
  • INF

Seventy-five wealth managers listed on the Preqin Infrastructure Online database are either actively investing in or considering allocating capital to the infrastructure asset class. Infrastructure investment can provide wealth managers with a number of benefits, including stable cash flows, diversification, attractive long term returns and inflation protection. However, the asset class also poses a number of risks, including sub-sector, liquidity, currency volatility and political risk, all of which may make such investment unsuitable to private investors, especially given the typically high minimum investment infrastructure funds require. The long-term nature of infrastructure investment may also mean that the asset class is unsuitable for the average wealth manager client, with balance sheets not robust enough to sustain such an investment. However, squeezed credit markets and economic uncertainty mean that governments are increasingly recognising private sector capital as a means to maintain and expand infrastructure; PFI and PPP vehicles may also provide a more attractive route to the asset class for wealth managers.

The majority (70%) of wealth managers who are active in infrastructure have a preference for investing globally in the asset class. Europe and North America are attractive destinations for infrastructure investment, being a preference for 34% and 40% of wealth managers respectively. Asia & Rest of World follows closely with 34% of wealth managers selecting this location as a preference for infrastructure investment. Twenty-six percent of investors listed a domestic preference towards infrastructure without a global preference, 36% listed a global preference without a domestic preference and 34% listed both a domestic and global preference.

The prominence of a global preference towards the infrastructure asset class for wealth managers may illustrate both an opportunistic approach towards infrastructure investment as well as a conscious effort to fully realize the benefits of diversification. Though a number of wealth managers are currently looking to the infrastructure asset class for such benefits, it will be interesting to see whether or not wealth manager appetite towards infrastructure is sustained when base rates increase and credit markets begin to ease.

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