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LPs favour infra secondaries over infra debt funds

About 39 percent of LPs plan to start investing in infrastructure secondaries, compared to 33 percent of LPs that anticipate investing in infrastructure debt funds.

Limited Partners are more likely to invest in infrastructure secondaries than infrastructure debt funds, fund of funds or listed equity funds, according to a recent survey conducted by PEI’s Research and Analytics division.

About 39 percent of LPs surveyed plan to start investing in infrastructure secondaries in the next 12 months, compared to 33 percent of LPs that anticipate investing in debt funds. Only 9 percent of LPs plan to invest in fund of funds and 7 percent that will consider listed equity funds.

Still, the majority – 56 percent – of LPs plan to start investing or increase their investments in infrastructure primary funds.


Source: PEI’s Research and Analytics division

Although secondaries are emerging as a popular infrastructure strategy, LPs are divided toward the asset class. Of those interested, the majority plan to commit to secondaries funds or be active buyers and few plan to be sellers.

Recently, LPs helped Blackstone’s Strategic Partners raise a $400 million separate account for infrastructure secondaries. Pantheon is also in market, targeting $700 million for the asset class. Both firms declined to comment, but Pantheon partner Kathryn Leaf-Wilmes recently said Pantheon’s secondaries infrastructure deal flow was $1 billion in 2010 and $4 billion last year.

Still, sources have said the asset class’ lower risk/lower return model is part of what’s keeping LPs away. Infrastructure secondaries is also niche sector when compared to other asset classes. It requires greater in-house specialisation, as a way of overcoming various infrastructure tax and structuring issues that also may affect returns.

While many LPs are opportunistic toward the asset class, about 41 percent of LPs admit they will not invest in infrastructure secondaries in the next 12 months, compared to only  10 percent of LPs that said they won’t invest in primary funds during the same period.