There is no widely accepted definition of what “infrastructure” means. The usual quick substitute for a definition is a list of examples, with perhaps an elegant historical reference to the Roman baths and aqueducts thrown in. Preqin, the multi-national data and consulting firm, considers for the purposes of its research on infrastructure funds, a more elaborate list of examples including both economic and the social components.
Economic infrastructure includes energy generation and distribution, transportation, logistics, and telecommunications. Social infrastructure refers to education, health care institutions, and the like. What they have in common is that both sets of examples may be said to serve as a base, or foundation, of other economic and social structures.
An infrastructure fund, then, is a fund that invests in some of that. More specifically, it is “a vehicle, run by a fund manager that looks to raise capital from institutional investors to then invest in infrastructure assets and projects.”
In its latest Infrastructure Spotlight, a newsletter, Preqin reviewed the year just concluded and looked ahead at 2012. The feature article, by Elliot Bradbrook and Iain Jones, focusing on closed-end unlisted funds, says that Europe remains the liveliest place where such funds concentrate their efforts. There are 59 primarily Europe-focused funds seeking investments. There are 31 analogous funds with a North American focus and 28 primarily concerned with Asian infrastructure opportunities. Furthermore, 26 funds “are focused outside of these markets, illustrating the growing importance of emerging economies, particularly in South America and Africa,” the authors said.
As you can see from that figure, Europe also has this priority if you measure not by the number of funds but by their aggregated target capital.
Green and Brown Fields
A more functional breakdown Bradbrook and Jones employ distinguishes “greenfield projects,” “brownfield projects” and “secondary stage opportunities.” A greenfield project is one that does not at present exist – it is (at least metaphorically) expected to rise up from a meadow. Thus, investors fund everything: from design and ground-breaking through construction and maintenance. A brownfield project is one designed to improve or update a project that already exists, and may still be generating some cash flow. A “secondary stage project” requires neither ground breaking nor structural improvements on an existing plant.
Infrastructure funds look for a diversified portfolio, one way they diversify it is by project stages. Thus, 69 percent of such funds now raising capital will invest in Greenfield projects, 81 percent in brownfield projects, and 54 percent in secondary stage opportunities.
Though new fund commitments in 2011 were “subdued,” because investors were cautious and the fundraising market was extremely competitive, it doesn’t follow that investors are in flight from the field. Only 9 percent of those included in a Preqin survey say that they are unlikely to invest in the asset class at all going forward.
Indeed, Bradbrook and Jones conclude that “institutional investor appetite for such vehicles remains strong,” and that since there is “a growing demand for private sector investment to aid in the development of public infrastructure,” the market will continue to expand.
Other Newsletter Contents
Later in the same newsletter, Paul Bishop provides an analysis of the infrastructure investor universe. The largest single investor by current allocation is the Ontario Municipal Employees Retirement System, with $15.1 billion committed. Another Canadian public pension fund gets the second spot on the league table: the Canada Pension Plan Investment Board, with a current allocation of $9.2 billion.
The largest European based institutional investor is fifth on the table: APG, in the Netherlands ($7 billion).
The largest U.S. based investor is sixth: TIAA-CREF, a private sector fund, at $6.5 billion.
There are two Asian institutions in the top ten. A Malaysian sovereign wealth fund, Khazanah Nasional, is seventh with $6.4 billion, and the Industrial Development Bank of India is eight with $6.1 billion committed to infrastructure funds.
In this issue, too, Emma Davis presents an breakdown of the infrastructure fund manager universe. Nearly quarters (24 percent) of the general partners are located in the United States. Large portions, also, are located in the United Kingdom (19 percent) and the rest of Europe (11 percent.)
She also analyzes fund managers by the number of funds a given manager has launched, and finds that most managers (67 percent) have only one infrastructure fund. Another 17 percent have two such funds, and only the small remaining slices on her pie chart have larger numbers.