Deloitte: Infrastructure investments hold up amid risky regulatory environment
9 May 2016
Infrastructure investments have held up over the past five years but political and regulatory risk dominates investors’ lists of concerns according to the latest infrastructure investors survey from Deloitte, the business advisory firm.
Deloitte surveyed 25 European infrastructure investors, including infrastructure funds and direct lenders, together holding over £200bn in assets and ‘dry powder’, for its 2016 survey, the fourth in its series.
Strong performance but targets cut
92% of respondents say their infrastructure investments have proved resilient over the last five years, with 8% saying performance has been mixed.
Investors have cut their target internal rates of return (IRR) with 43% predicting returns of between 10% and 12%, a shift from 2013’s Survey when 41% were expecting returns of between 12% and 14%.
Transport assets see most positive performance
Returns in the transport sector have proved strongest, with ports, ‘other transport’ assets and rail/metro assets performing well. Infrastructure services and telecoms assets were also among the highest performers. IRRs were lowest for PFI/PPP assets, water and regulated utility assets. However, returns in all asset classes were lower than those reported in Deloitte’s 2013 survey.
Politics and regulation lead worry list
Political and regulatory risks dominate investors’ list of concerns with 38% citing political risk and 35% citing regulatory risk. Overall, 92% say that regulatory risk has increased over the past five years, with 25% saying it has increased significantly. 67% say they expect regulatory risk to further increase over the next five years.
Within Europe, investors perceived regulatory risk to be highest in Iberia, Italy and the UK, with much lower perceptions of risk in Benelux, France and Germany.
Traditional markets dominate
Investors were asked to rank the level of focus their funds have on global and European markets. Globally, interest is strongest in Western Europe, followed by North America and Australasia. Interest in China has grown significantly from 2013’s survey, but interest in India, the Middle East and Africa remains low.
Within Europe the most attractive locations for investors were the UK, Scandinavia and Germany. Since 2013’s survey, investors’ interest has also increased in Italy, Iberia and France.
Infrastructure investors becoming more active
Infrastructure investors are stepping up their involvement in investee companies. 95% say they are actively or very actively involved in their investee companies. Investors are most closely involved in strategic business planning, large project financial management and acquisitive growth decisions.
This focus on asset management has also resulted in a significant improvement in corporate governance structures, with over 95% of investors rating the corporate governance of their assets as good or excellent, up from 60% in 2013.
Investors report good access to finance
Investors are confident around the outlook for debt availability. 65% say debt finance will remain steady over the next five years, 15% predict it will increase, while 20% forecast a decrease.
Jason Clatworthy, infrastructure M&A partner at Deloitte, said:
“The infrastructure asset class continues to perform strongly and provide stable, secure returns. We expect this to continue through a period of more steady evolution in the infrastructure investors market over the years to come.
“There is clearly a wall of capital looking to deploy into this space. As such, infrastructure investors remain keen to see an increase in deal pipeline, both via the secondary sale markets but, importantly, also in the greenfield space should regulators of governments facilitate this more readily.”
David Scott, infrastructure M&A partner at Deloitte, said:
“Investors are focusing the majority of their resources in the traditional infrastructure markets of Western Europe, North America and Australasia. But with the increasing focus of direct investors on these markets, funds are now considering other regions for investment.
“Following a significant fall in attractiveness in our 2013 survey, Iberia and Italy have seen a resurgence in attractiveness and are very much seen as ‘open for business.’ The expectation is that the worst is over for these areas and a more stable future lies ahead.”
Notes to editors
The survey is based on interviews conducted by Deloitte in Q1 2016 with 25 infrastructure investors across Europe, as well as the European arms of global infrastructure investors.
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
The information contained in this press release is correct at the time of going to press.
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