Diversified financial services provider AMP (ASX: AMP) is reportedly seeing strong demand for infrastructure assets from institutional investors, however Mr Paul Foster who is Head of Infrastructure at AMP’s investment division AMP Capital, has complained that a weak pipeline of deals is limiting the opportunity to capitalise on this demand.
According to a report by Investment Magazine, Mr Foster in reference to institutional investors and their desire for more infrastructure assets is quoted to have said, “Money is not the problem – there’s plenty of capital – the issue is deal flow.”
Mr Foster’s comments come in the wake of a report released by AMP that found institutional investors were most likely to increase their allocation to direct infrastructure, private equity and listed real estate. Of the investors surveyed, 40% of respondents said they would be increasing their exposure to these categories during 2013.
Infrastructure assets are a particularly good fit for superannuation funds given the long-term investment horizons and consistent cash flows. This was a fact Macquarie Group (ASX: MQG) was early to realise and capitalise on by creating a number of listed infrastructure funds that provided exposure to assets including toll roads. Even the Future Fund has been upping its stake in infrastructure recently, with its takeover of Australian Infrastructure Fund, which amongst other assets, holds an indirect shareholding in Sydney Airport (ASX: SYD).
With consolidation amongst infrastructure assets continuing – pipeline owner APA Group’s (ASX: APA) recent attempted takeover of Envestra (ASX: ENV) is the most recent example – and few new assets being built or scheduled for privatisation, it’s likely that many superannuation funds will have to look offshore to gain their desired exposure.
With Australia crying out for improvements to infrastructure around the country, it should only be a matter of time before deals once again start to flow. This is good news for superannuation investors and also good news for investors in companies like AMP and Macquarie that stand to benefit from the increased deal flow.
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Motley Fool contributor Tim McArthur owns shares in Macquarie Group.