What Future For Infrastructure Funds?

It's fair to say the last few years have been difficult for the financial markets

. As the banking world around them collapsed investors have scurried hither and thither desperately looking for safe havens - isolated pockets of economic health - in which they could see out the storms. Many of them believed they had found it in infrastructure funds and as time wears on they're starting to look smart.

According to some data more capital was raised by unlisted infrastructure loans reaching their final close, this year than in the whole of 2009. That's pretty impressive and, according to many industry analysts, indicates substantial recovery from the difficult days of 2009. However, are they being a little premature

Throughout the last year there has been genuine concern for the future of the sector. As access to debt dried up there was substantial difficulty in sourcing required funding levels. In a volatile market, investors were understandably wary about risking their capital. They held onto their cash and waited to see which way the wind was blowing.

Such behavior is understandable and - given the extent of the crisis - virtually inevitable. However, it was a serious problem especially given the amount of infrastructure projects requiring finance all around the world.

The growth of emerging nations in Latin America, Africa and Asia, means there are all sorts of ventures ongoing throughout the world. With the amount of capital available to infrastructure funds becoming more constrained the market saw the emergence of a substantial gap between the level of available capital and the requirements of the global industry. Quite simply, the world had begun building more than it could afford.

Now, as we enter the period of recovery - although in an incredibly tentative manner - there is real prospect of funding becoming available again. As such there is every reason to be optimistic that the growth of infrastructure funds seen over the past five years can resume. With so many projects ongoing throughout the world the market has virtually unlimited potential. The only question is, will investors be happy to put their cash on the line.

We're at something of a cross roads in the evolution of infrastructure funds. There is huge potential, yet investor fear has held the market back over the past year. The question is, as the economic recovery gains speed how long will they take to recover their previous confidence and when they do, can they push the market to fulfill its potential?

by: Dominic Donaldson

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