Infrastructure investments getting more sophisticated
By Arleen Jacobius | March 18, 2013
(updated with correction)
Infrastructure managers are jazzing up their investment offerings with everything from debt to acquiring infrastructure projects through distressed municipal bond strategies.
There is even a nascent movement to invest in infrastructure limited partnership interests on the secondary market.
There are a number of funds being raised to invest in infrastructure debt, said Kathryn Leaf Wilmes, partner and global head of infrastructure investments in the San Francisco office of Pantheon Ventures, a global alternative investment funds-of-funds firm. She declined to name the managers sponsoring the funds.
UBS Global Asset Management is expected to launch an infrastructure debt fund, sources said.
Industry Funds Management also is adding a global infrastructure debt strategy, said Brett Himbury, CEO of Industry Funds Management, Melbourne, Australia.
Some managers like IFM see opportunity in helping European banks refinance the infrastructure debt they have on their balance sheets, Mr. Himbury said.
“Banks, especially in Europe, are being forced under Basel III to remediate their balance sheets, and banks had been infrastructure lenders,” Mr. Himbury said. “In many instances we would not be originating loans. ... There will be billions of dollars that has to be refinanced in the next few years.”
A number of investors, including Canadian pension funds and insurance companies, have a big appetite to lend to stable assets that offer yield, said Matt Garfunkle, a partner in the San Francisco office of Pantheon Ventures.
Another way investors are starting to invest in infrastructure is through the nascent secondary market, said Mr. Garfunkle, who is the head of Pantheon's infrastructure secondary market group. Early infrastructure investors such as banks and insurance companies are having to sell their limited partnership interests because of regulations including Basel III. Also, some more experienced institutional investors now are choosing to invest directly and, as a result, are selling their limited partnership interests in infrastructure funds, Mr. Garfunkle said.
Deutsche Bank's RREEF infrastructure unit manages about $6 billion in infrastructure securities for global institutional and retail investors, said Manoj Patel, Chicago-based portfolio manager and director.
“We've seen increased activity in the U.S.,” Mr. Patel said. “Typically, institutions look at it as part of a real-asset bucket. They look at listed infrastructure as a way to have more liquid, active exposure. It's similar to the way institutions look at (real estate investment trusts) as part of real estate.”
In March, Guggenheim Partners added a dedicated North American infrastructure team to its real estate and infrastructure investment platform. The team, led by William Reid, senior managing director, all came from RREEF Infrastructure.
In November, the municipal bond opportunities group of Santa Monica, Calif.-based Saybrook Capital LLC moved to Los Angeles private equity firm Kayne Anderson Capital Advisors LP. The strategy is to invest in troubled municipal bonds with a view of gaining control over the underlying infrastructure assets. The Saybrook group launched the strategy in 2000, investing about $420 million in 36 investments.
This article originally appeared in the March 18, 2013 print issue as, "Infrastructure investments getting more sophisticated".