Senior Vice President, Associate Portfolio Manager, Infrastructure
¹Preqin Quarterly Update: Infrastructure: Q2 2018.
²PreqinPro as of September 2018.
³Peter Smith and Judith Evans. “Infrastructure funds make bold bet as investor demand runs on.” Financial Times, 23 Sept. 2018.
Some of the largest pension funds in the world have been leading the charge for the asset class, and we would expect other institutions and retail investors to follow their lead. A recent survey conducted by Preqin4 found that 55% of institutional investors planned on increasing allocations to infrastructure over the longer term – more than any of the other asset classes.
For example, the Canadian Pension Plan Investment Board (CPPIB), an institutional investor representing C$356.3 in net investments5, has been one of those early trailblazers. Their allocation to infrastructure has grown from 0.2% in 2005 to 8.0% in 2018 (Exhibit 2). In actual capital invested terms, CPPIB’s allocation to infrastructure of ~C$200m in 2005 has grown to a C$28.6bn investment today and marks a substantial increase in capital deployed.
While demand for and allocations to infrastructure are increasing, a challenge has emerged for private market investors. The high level of dry powder illustrates the difficulty fund managers are having finding attractive investment opportunities given the scarcity of assets and increased competition in the private market. For investors looking for exposure to essential infrastructure assets, we believe the listed market provides ample liquidity while standing to benefit from investment characteristics that of a private market investment.
Source: Canadian Pension Plan Investment Board (CPPIB).
Over the last three years, we tracked more than 70 deals where private market participants acquired core infrastructure assets. The deals represented more than $75bn in aggregate deal size. We find the average EV/EBITDA multiple paid by private buyers has been 15.3x. By comparison, the listed infrastructure market traded at an average 11.6x multiple over the same time. The difference is a significant 24% discount to the private market (Exhibit 3). It is our view that the large and growing pools of private infrastructure capital will continue validating the inherent value of the listed infrastructure space through ongoing transaction activity.
4Preqin Investor Interviews, December 2017.
5CPPIB FY2018 Annual Report. Excludes non-investment assets such as premises and equipment and non-investment liabilities, totaling $(0.2) billion for fiscal 2018.
Source: CBRE Clarion Securities