Divergent performance trends have produced different outlooks for two asset classes, infrastructure and natural resource funds, according to a survey by Preqin, a data source for the alternative assets industry.
Its global survey of 175 institutional investors found that while 23 per cent of those invested in infrastructure have increased confidence in the industry over the past year, 26 per cent of those invested in natural resources have lost confidence. The majority (89 per cent) of infrastructure investors said the asset class’ performance has met or exceeded their expectations but only 35 per cent of natural resources investors said likewise.
In light of these performance concerns, only 29 per cent of natural resources investors are positive about the industry compared to 51 per cent of infrastructure investors.
“The real assets industry is heavily divided, at present, between infrastructure and natural resources,” said Tom Carr, head of real assets products at Preqin. “Infrastructure has seen consistent performance over the past 12 months and, consequently, investors’ confidence levels in the asset class are building which should lead to re-investment within infrastructure. However, macroeconomic factors have caused performance struggles in the natural resources sector, and so investors are taking a wait-and-see approach.”
Indeed, 64 per cent of respondents that invest in infrastructure plan to have made their next commitment by the end of 2017, compared to 33 per cent of natural resources investors.
More than half (51 per cent) of infrastructure investors plan to commit more capital to the asset class in the next year compared to the previous 12 months, while a quarter (25 per cent) of natural resources investors intend to do the same, with a fifth planning to decrease their allocation over the same period.
Both types of investors face their own unique challenges, according to the survey. Natural resources investors are facing underwhelming performance while infrastructure investors cite deal pricing in a competitive marketplace as the biggest concern over the next 12 months.
Fees also remain a concern. Some 63 per cent of infrastructure investors identified management fees as an area for improvement while more than half (53 per cent) of natural resources investors see the method of calculating performance fees as a problem.
Co-investments is a continual trend among infrastructure investors with 43 per cent engaged in the practice and 63 per cent planning to increase activity in the space. By contrast, only 32 per cent of natural resources investors co-invest, although half plan to ramp up their participation.