Superannuation funds are choosing alternative avenues to infrastructure investment under the pressure of increased competition, Peter Meany, head of global listed infrastructure at Colonial First State said.
Institutional investors, particularly industry super funds and pension funds that had previously shied away from the asset class, have increased demand for infrastructure over the past 12-18 months, which has increased competition for the few listed infrastructure assets available, according to Meany.
He said super funds had found it difficult to supply dedicated asset allocations to infrastructure in what was a narrow market.
"Everybody's chasing the same core developed-market infrastructure assets and there just aren't that many available. So what you've seen is a highly competitive bidding process for the few assets that are available, and prices have become quite expensive in that process, so they've…revisited the outlook for unlisted infrastructure," he said.
Super funds have also lowered return expectations under subdued market conditions and were increasing demand for infrastructure debt, according to Meany.
Meany said institutional investors had not changed their demand for exposure to the asset class, but had started to view its infrastructure allocations in the same light as its property allocations, which were diversified across both direct property and real estate investment trusts.
Investors invested with hindsight, Meany said, which had driven them to seek other places to put funds that had been squirreled away in cash.
"As interest rates come down around the world…it's no longer an easy option to just hang out in cash.
"There's a whole range of larger-scale investors that recognise if they accept some short-term, although defensive, exposure to equity markets, the medium- to -long-term return outcome is very high," he said.
