Reuters report says pension funds, other investors in rush to invest in European infrastructure

December 6
7:48 AM 2013

A Reuters report said investors who are looking for higher returns at a time of low interest rates are looking to make investments in European power distribution systems. These infrastructure assets include wind parks and gas pipelines that run from France to Norway. The report said these are generally less risky compared to the so-called Greenfield projects.

The demand is so high that even the government stakes in Nordicutilities Vattenfall and Fortum, which could come to the market next year, will not be sufficient, said the report. Hermes GPE Infrastructure Partner Hamish de Run told Reuters, "Assets are not coming to market as freely as they have done in the past or as they had been expected to come in relation to government privatization."

The shortage of investment opportunities in European infrastructure, as said in the report, is due to various factors, which include the dearth of political appetite for state sales, a buoyant debt market, which has led to a decrease in the number of corporate sellers, and the lack of opportunities to reinvest for funds that already have some of the assets. The report stated that while sellers were more active in some debt-ridden countries in the southern part of the Euro Zone, the assets which are of higher quality can be found in the northern European countries which are stable politically and economically. Here, the assets are not easy to come by, the report concluded.

The report cited the cancellation of the IPO of TenneT, a grid operator, by the Dutch Finance Ministry. The government of Germany is also less politically inclined to proceed with an unpopular sale of assets of the 'Crown Jewel' for fear that that it would endanger a government coalition. UK also has few remaining state infrastructure to offer, as said in the report.

Meanwhile, traditional infrastructure funds are also challenged with the entry of pension funds, sovereign wealth funds and insurance firms to the sector. According to de Run, the infrastructure funds needed to take more risk to get the returns they want.

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