And while government stakes in companies such as Nordic utilities Vattenfall and Fortum could come on the market in 2014, these alone won't satisfy demand. "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 privatisation," said Hamish de Run, Infrastructure Partner at Hermes GPE.
A lack of political appetite for state sales, a decline in the number of forced corporate sellers thanks to a buoyant debt market and a shortage of reinvestment opportunities for funds that already hold some of the assets are all playing a part. Reasons vary from country to country, and while some of the debt-hit southern euro zone countries have been more active sellers, higher-quality assets in the more politically secure and economically stable countries of northern Europe are scarce.
In October, the Dutch finance ministry scrapped plans for an IPO of grid operator TenneT, while talk about a sale of part of the French state's stake in electric power utility EDF has gone quiet. There is little political inclination in Germany to endanger a government coalition with an unpopular sale of 'Crown Jewel' assets, while the UK, which pioneered the sale of state infrastructure, has little left to sell.
British and German plans this spring to sell a stake in government-controlled uranium enrichment firm Urenco, estimated to be worth up to 10 billion euros ($14 billion), hit resistance from the Dutch government, which owns a third. Sources say a sale or IPO may be revisited in early 2014. "We see an overhang in demand for core infrastructure assets - operational, very well-regulated or long-term contracted assets, with inflation protection and very predictable cash flows," said Markus Hottenrott, chief investment officer of Morgan Stanley Infrastructure, which manages $4 billion.
Pinning down the size of the infrastructure market as a whole is difficult, given the varying definitions. Taken as assets with government involvement at some level, such as price setting or regulation, J.P. Morgan Asset Management said the UK alone, Europe's most mature market, has $1-$1.5 trillion of investible assets. The slice of that figure considered "core" is much smaller, however. An asset is generally defined as such when it has been running well for a number of years and the income is steady and reliable - qualities that make them more expensive and reduce the payout attraction to equity funds. The entry of investors such as pension funds, insurers and sovereign wealth funds to the market has challenged the dominance of traditional infrastructure funds, which are having to take on more risk to bag the returns they seek.