Asia's vast economic potential has attracted but a trickle of U.S. tax-exempt money to partnerships that invest in infrastructure projects there.
Or, perhaps, no one wants to own up to investing in a region and in a product that will surely be made the scapegoat for the next global economic slowdown, that is if Saddam Hussein doesn't first bail them out.
Still, institutions other than local governments have invested an estimated $5 billion in Asian infrastructure.
Investors couldn't be blamed for wanting to keep a low profile.
Since the crisis began in 1997, a major Hong Kong investment manager active in infrastructure investing imploded. Also, Indonesia's fraying economic and social fabric is due, in part, to unnecessary infrastructure projects that benefited the president's children.
Peregrine Investment Holdings Ltd., which with Frank Russell & Co. and the Asian Development Bank sponsored the Asian Infrastructure Fund, went dark.
Indonesia's bailout by the the International Monetary Fund, hinges, in part, on an agreement that it halt 15 infrastructure projects, many of which would have benefited President Suharto.
With this backdrop, an informal survey of tax-exempt institutional investors found only the $43 billion University of California endowment and pension fund to still be interested in Asian infrastructure.
University of California Regents Treasurer Patricia Small said the Oakland-based pension and endowment fund committed $100 million to the AIG Asian Infrastructure II partnership. The university, two years earlier, made a $75 million investment in AIG's first fund.
The pension fund for GTE Corp. also is an investor in the first AIG Infrastructure Fund (Pensions & Investments, Oct. 3, 1994).
Several sources said the pension fund for General Electric Co., Stamford, Conn., is also an investor in the AIG funds, but telephone calls to the pension fund were not returned.
AIG raised $1.5 billion for its second fund; the first one closed at $1 billion.
The $3.3 billion San Diego County Employees' Retirement Association approved a $10 million commitment to the CEF Concord Infrastructure Fund, pending a review by a to-be-named consultant. But the sponsors -- Canadian Imperial Bank of Commerce and Hong Kong-based Chung Kong Ltd. -- decided to proceed without the pension fund because the approval process took too long.
The $128 billion California Public Employees' Retirement System, Sacramento, has not invested in Asian infrastructure, said spokesman Brad Pacheco. But the fund does have an agreement to do joint venture investments in companies with the Asian Development Bank, which is a sponsor of one of the infrastructure funds.
"Some infrastructure will be a part of the mandate, including operating companies," said Mr. Pacheco. "It will be soft infrastructure, like health care, pension funds and stock exchanges.
"The timing could be ripe for investments, considering Asia is in somewhat of a turnaround."
Officials at several pension funds that are Frank Russell clients either denied they invested in the Asian Infrastructure Fund, or didn't return phone calls seeking information.
AIG declined to comment, citing restrictions that prevent the firm from discussing the fund while raising money for its second fund.
Russell Chief Executive Officer Michael Phillips declined to be specific about the status of the projects in which its $160 million telecommunications and $780 million general infrastructure funds have invested. But he spoke optimistically about the outlook for the region.
The investments are well diversified by geography and industry, and include transportation, power generation and communications, said Mr. Phillips.
"Insofar as they are private (investments) and long term and aren't traded, that whole question of value is moot," he said.
"We remain bullish on Asia and infrastructure in particular.
"It is our philosophy to consciously take risks, but then to diversify that risk. There is no single exposure sitting there."
Don Roth, managing partner with Emerging Markets Partnership, which oversees the investments in the AIG*partnerships, acknowledged the crisis has depressed the value of AIG's investments. But he expected them to recover when the partnership terminates.
"We told them (investors in Fund I)*to expect returns of 20% to 25% net," said Mr. Roth. "We still think, given the time horizon until maturity, that is still in the cards. If we had to sell today, we wouldn't achieve those returns."
Ms. Small of the University of California said infrastructure investing was attractive to her funds because the investments aid in an economy's growth as well as provide a competitive return.
She likened the infrastructure investments to the university's large venture-capital efforts, which provided funding to start several companies.
"We don't like to make money for money's sake," said Ms. Small. "We like to foster growth and change. These countries need a startup, a boost. You are creating something with infrastructure."
But some critics of infrastructure investing claim the boost to the countries' economies comes at too high a cost to investors.
There is a concern that a government will cap returns a foreign investor can earn on an infrastructure project, said several investment managers who spoke on the condition they not be named.
Other problems cited are:
* The projects consume huge amounts of money.
* The assets can't be moved if the government tries to seize control.
* There are too many corporate sponsors taking fees, with not enough money trickling down to the people making the investment decisions, which leads to turnover, said critics.
* There has been significant turnover among key personnel at the partnerships, in part because of the poor economic terms for the decision makers.
Will Lilley, and Eric Wei, key Peregrine employees, are no longer affiliated with the Asian Infrastructure Fund, according to Asia Pacific Private Equity Bulletin, a newsletter.
Ms. Small acknowledged the issues are valid concerns, but added they could be circumvented by an experienced manager.
"You don't go in where you can fall into those traps," she said. "You go with the best managers who are aware of those pitfalls, those who have good, honest contacts and good standards."
Energy projects, said Ms. Small, received the notoriety for having their returns capped by governments, but AIG has avoided those projects, she said.
According to Mr. Roth, EMP has guided the AIG funds into China, Taiwan, India and, recently, Korea. The first three markets have not had the problems associated with Southeast Asia. Korea is recovering, he said Investments in Southeast Asia, which have had projects postponed or cancelled, are minimal, he said.