24 / 04 / 23 - 1 minute read
This brief explores the mid-market infrastructure environment, the evidence of outperformance, and the drivers of this alpha. We also consider portfolio construction, with the purpose of informing investors on how an allocation to a proven mid-market manager within their infrastructure portfolio can benefit them, even alongside an existing investment in large-cap infrastructure funds.
Infrastructure has historically been associated with large-scale assets essential for any well-functioning society – assets such as airports, roads, ports, and utilities. These crown jewel assets attract significant sums of capital from large scale infrastructure funds and big institutional players such as sovereign wealth funds, however, there exists opportunities for investment beyond the mega assets – deals within the mid-market, which offer a comparative advantage over their larger peers.
In this brief we identify four sources of the observed outperformance: relative market efficiency, active ownership, opportunity sets, and entry multiples. We expect these drivers to continue to facilitate the persistence of mid-market outperformance.
Performance data on infrastructure funds shows mid-market core and core-plus funds have outperformed their large-cap peers over a protracted timeframe. The median internal rate of return (IRR) for mid-market funds since 1996 was 250 basis points higher for core funds, and 150 basis points higher for core-plus funds.
Harrison is a member of the Investment Solutions Group and is responsible for providing asset consulting services to institutional clients, including in the areas of investment strategy, manager selection, and asset allocation, with a particular focus on modelling and analysis. Harrison is also involved in producing research papers for PATRIZIA Infrastructure. He has a background in consulting, previously working at Deloitte where he undertook financial modelling of infrastructure and economics projects, across both the public and private sectors. Harrison has a Bachelor’s Degree in Finance and Economics from the Australian National University.
Justin leads the Investment Solutions which is responsible for providing strategic advice and building investment strategies for institutional and government clients. Justin’s particular fields of expertise centre around developing and managing investment risk management strategies and developing alternative asset portfolio plans for institutional investors, focusing on liquidity and illiquid asset investment programs. Justin is a Chartered Accountant and a member of the Australian Institute of Company Directors with extensive experience in infrastructure investment, corporate finance and financial modelling together with performance analysis, reporting and alternative asset management. Justin sits on PATRIZIA’s Listed and Unlisted Infrastructure Investment Committees and is a member of PATRIZIA Infrastructure’s Valuation Committee.
Managing Director Infrastructure Investment Solutions