The infrastructure market has evolved from a bank-dominated market less than 10 years ago, to one with a growing institutional investor presence. The fundamental drivers are regulatory change and the search for yield.
As a percentage of assets under management (AUM), institutional investment in infrastructure is still low at 1.1%1 in OECD countries, albeit the percentage has doubled since 2012. According to Preqin, institutional interest in the sector is strong: 89% of infrastructure investors surveyed plan to maintain or increase their allocation to the asset class next year.
In Europe, the activity in the debt fund market has been steadily growing. Since 2013 around EUR 7 billion2 of debt funds have been raised; six funds totaling EUR 2.6 billion3 were raised in 2016, a record. However, banks continue to maintain a high share (circa 90% of the private4 infrastructure debt market.
Institutional investors have been very active in the larger transactions (average size, 2016: EUR 227 million) but banks continue to be dominant in the mid-cap area where the highest volume of transactions are; in 2016, more than 54% of the deals in the private market were less than EUR 100 million.
The mid-market space offers a large addressable market, and could present opportunities for investors able to offer long-term funding, a competitive advantage.
What are some of the portfolio considerations of infrastructure debt?