Despite the increase in aggregate capital invested in infrastructure, this increment was not evenly spread across regions. Preqin reports that North America- and Europe- focused funds accounted for the lion's share of the 109 unlisted infrastructure funds that have reached financial close since January 2015. This represents 61 percent of the number of funds and 75 percent of the aggregate capital raised. Asia only represented about 14.6 percent of the $90.8 billion raised for infrastructure investment.19
The simple reason for such a weighting is that capital will flow to the best risk-adjusted format, and many global investors determine that their capital is better deployed outside of Asia. The specific reasons for such a decision will vary by country, industry and project; however the global investment numbers paint a clear picture of the impact of the often significant regulatory demands and operational risks faced when dealing in this region.
Expected returns for renewable energy projects in Asia-Pacific tend to be higher than for comparable projects in Europe or the US, particularly in the region's emerging markets. Benjamin Haan, Head of Private Infrastructure, Asia-Pacific, Partners Group |
Some hurdles that led to a lack of investor appetite in infrastructure projects in Asia include10,20:
• Unfavorable legal and regulatory frameworks
• Political instability and uncertainty
• Capital markets with low liquidity, currency volatility
• Illiquid nature of infrastructure assets
• Complex nature of the asset class - from both governance and operational standpoints
• Poorly structured projects without sufficient economic or technical viability
• Lack of data on prior infrastructure projects for benchmarking
One potential bright spot for Asia is in the renewable energy market, where Partners Group currently estimates that returns in Asia's emerging markets outperform more established markets, with yields of between 14-15 percent in local currency for operating assets, and up to 20 percent in local currency for development assets.21