After a lull, private equity investments in the infrastructure sector are likely to look up again by the end of this year and the reserves available with the fund houses are expected to touch $100 billion by 2012.
According to a report by global research firm Preqin, investor interest in the asset class would recover by the end of 2009 and start to make up the current deficit.
"In 2010-2011, we predict that infrastructure fund raising will start seeing the sort of fund raising activity which it was enjoying pre-2009.
"We predict that infrastructure dry powder (term used to denote capital available for deals) levels will reach a historic $100 billion by 2012," Preqin said in its report titled Infrastructure Spotlight.
In the first half of 2009, three unlisted PE infrastructure funds mopped up $3.5 billion and all the fund closures came in the first quarter.
The report added that as of June 2009, unlisted PE funds investing in infrastructure space were sitting on a reserve of a record $71.5 billion, denoting a consistent increase since 2003.
An unlisted infrastructure fund generally means a vehicle, usually with a limited partnership-type structure, that is not listed on a stock market. The fund invests in infrastructure assets and may also invest in infrastructure- related companies.
However, Preqin noted that the current difficult fund raising times that the sector is going through might lead to some depletion in the reserves of the fund managers as investors would hold back making full commitment in one go and would rather opt for funding in a phased manner.
"In order for infrastructure funds to deliver satisfactory returns, fund managers will have to start making draw-downs...so it is likely that there will be a temporary decline in the amount of dry powder available," it added.
Going forward the fund raising is likely to improve as experienced investors are remaining enthusiastic towards the asset class and many are carving out separate allocations to infrastructure.
As the economy begins its recovery and investors start looking for new vehicles to invest in, many will see infrastructure as an attractive proposition, providing low risk, stable returns.
"When fund raising conditions improve, with over 90 infrastructure vehicles on the road, the dry powder levels will not remain in decline for long," Preqin said.
Infrastructure funds are experiencing the toughest fund raising conditions in the short history of the asset class. The key factor hindering fund managers at present are lack of available investor capital due the global economic crisis.
