Infra secondaries deal flow increasing

In a section of its Private Markets Navigator report for the second half of 2010, Partners Group says that the infrastructure secondary market has “picked up significantly” over the last 12 months. The firm claims to have been an early participant in the market, having, since 2009, completed five transactions with original commitments of over $150 million at discounts ranging from 80 percent to 5 percent.

The firm adds that, in the year to date, it has analysed over 40 different portfolios of assets with total original commitment sizes of roughly $1 billion.

Partners Group says it expects healthy deal flow levels to continue but that a “highly selective” approach is needed on financial secondaries where a lot of capital has already been deployed during the peak years and therefore require “substantial discounts” to compensate for inflated valuations and high leverage. More favoured are so-called manager secondaries where a lot of capital still remains to be deployed in a “highly attractive” investment environment.

The firm says it currently sees good opportunity for secondary transactions in the UK social infrastructure space, as projects move from contruction to becoming operational.

Says Michael Barben, partner and head of private infrastructure at Partners Group: “In the UK, we see a significant potential on the secondary market for social infrastructure assets. A lot of projects were done in the good times, and there is now a big pool of social infrastructure equity in the hands of organisations that find themselves in a difficult position. Hence, we expect a pick up in early-stage opportunities where projects are still in construction or are just moving from the construction to the operational phase. It’s a large backlog that needs to move through the system and find a home.”

Despite the apparently widening opportunity set, however, secondaries are still a tiny proportion of the overall infrastructure investment market. One placement agent recently told Infrastructure Investor:

“Infra secondaries, as far as dedicated funds focused on buying positions in infra funds, are almost totally undeveloped. I don’t know of any specialist funds focused on the sector – but that is really because the whole sector is so new that there is not a critical mass of product.”