Asian market drives record investment in infrastructure

Investment in global infrastructure assets rose strongly in 2016, reports alternative assets industry data specialist Preqin.

The international firm, which has offices in six major global financial centres, provides data on the private equity (PE), real estate, hedge fund, infrastructure, private debt and natural resources asset classes. It reports that in total 1,772 deals were completed in last year for infrastructure assets equalling US$413bn, although both figures are likely to rise by up to 5% as more information becomes available.

The figure marks an increase of 14% from the US$362bn in total deal value seen in 2015, and a sharp rise from the aggregate deal value of US$327bn recorded in 2014. The number of transactions in 2016 was similar to the levels seen in 2015 and 2014, which saw 1,743 and 1,787 deals completed respectively, as average asset valuations within the market continued to rise.

Preqin reports that Asia has seen a significant push for infrastructure investment in recent years and saw the highest level of financings of any region in 2016, with 552 deals completed for a record US$131bn as fund managers noted the potential for development within the region.

Europe was also a prominent market for infrastructure deal activity, and the region saw the highest number of deals at 555 for a total of US$97bn, while the mature infrastructure market in North America also attracted significant levels of capital at US$96bn.

“Given the demand for infrastructure in less developed countries, it is perhaps unsurprising that the rest of the world saw 237 financings for US $89bn, and accounts for five of the top 10 largest deals of 2016,” the firm reported.

In its end-of-year update, Preqin reported: “Infrastructure projects remain central to the development of countries across the world, and as a result the asset class has become home to a diverse range of firms and institutional investors.

The constant need for, and evolution of, modern transport systems, alternative power sources and technological structures make the industry an attractive proposition, said the firm.

“Moreover, Donald Trump’s infrastructure programme could spur a wave of private investment in the US as participants look to capitalise on the potential for subsidised ownership.

“However, as demand for infrastructure has increased over the last decade, greater competition for assets – particularly secondary stage assets in developed economies – has pushed valuations upwards. Low interest rates have also contributed to higher pricing demands, as leverage becomes cheaper, which will be a concern for firms.

“As such, it will be interesting to see if the pace of the market can be sustained moving into 2017 or if managers struggle to deploy their available capital in attractive projects.”

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