Infrastructure can be risky: van Eyk
Infrastructure cannot be explained as a single, homogenous asset class, according to the inaugural research paper published by investment consultant van Eyk.
While infrastructure investments are becoming increasingly popular as fund managers continue to search for new sources of alpha, the paper argued that there are a number of material differences that affect the level of return investors experience.
These include variances in risk return profiles between sectors, different geographical regions and specific projects.
“The asset class is polarised between mature assets and new assets, mature regions and emerging regions,” it said.
The paper also warned that the high level of returns enjoyed by early adopters of the asset class are not reflective of future expectations.
It goes on to explain the global trend towards privatisation of infrastructure assets, which has “brought the asset class into the universe of the private sector”.
This has led to governments looking to the private sector to supply equity financing for infrastructure projects.
Other longer term drivers of private investment in infrastructure identified in the report include population growth, renewed focus on infrastructure projects within newly developed countries, rising living standards in developing markets and new opportunities presented by the ageing population.
According to the paper, specific sub-sectors within infrastructure as an asset class also represent more risk than others. For instance, infrastructure investment within utilities brings acquisition risks, the chance of unfavourable regulatory rulings, exposure to price volatility, and the possibility of growth rates not meeting expectations.
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