One good measurement of investor enthusiasm for direct infrastructure is how much intended capital direct managers actually raised. As recently as 2015, direct infrastructure managers took in roughly 90% of their intended capital raise, a strong showing. In the first half of 2018, these same managers reportedly took in more than 100%* of their intended capital raise. These managers now hold excess cash with only a finite list of areas in which to invest. Too much money chasing too few assets inevitably pushes prices higher, which can lead to asset price bubbles.
We don’t think investors are necessarily wrong -we believe infrastructure is an attractive investment as well and think we are in the early stages of an infrastructure boom. The regulatory landscape is evolving quickly, as are the relative value opportunities. We continue to believe in the structural opportunities across a wide cross section of infrastructure assets in the coming decades due to the cross currents of investor appetite for defensive, cash-generative businesses, and the societal need for continued investment in infrastructure. We believe though, it is a question of getting the right exposure.
With capital chasing private infrastructure, investors may want to consider publicly listed equities as an alternative. The prices of listed infrastructure equities are struck every second of every trading day. This “mark-to-market” mechanism occurs in equity markets and there is nothing opaque around the value of these businesses. The quality of assets can be the same across both direct and publicly listed infrastructure. What is not the same is the price you pay.
Jim Lydotes, managing director, senior portfolio manager, Mellon.
*Based on Prequin infrastructure survey as at August 2018.