Infrastructure Secondaries: Taking Off

Why infrastructure secondaries

Infrastructure secondaries not only provide the traditional benefits of secondary investments, but also offer additional distinct benefits specific to the infrastructure asset class.

Infrastructure assets typically have inflation-linked revenues and pricing power along with stable, recurring cash flows from providing essential services further reinforced by high barriers to entry.

Relatively nascent phase resulting in a buyer-friendly gap. Small- and mid-sized transactions tend to fly under the radar, offering the potential to be selective.

Secondary transactions offer immediate yield from as early as day one. Moreover, the chance to buy assets at a discount or opt for a deferred payment structure can mechanically boost yield.

Infrastructure is just beginning to catch up

The formation and development of a secondary marketplace is recognized as a natural progression for illiquid asset classes, as seen in the maturation of more established alternative strategies such as private equity & real estate.

In the past 10 years, LP-leds have accounted for approximately half of transactions, with GP-leds accounting for the other half. LP-led secondary investments are typically acquired at a discount to NAV, which can drive immediate uplift. Furthermore, pricing is often based on a historical reference date valuation, which may be stale at the point of acquisition. This results in an effective discount that is often higher than the optical discount, which can be further enhanced through the use of deferred payments.