Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. ALTERNATIVES
November 11, 2013 12:00 AM

Infrastructure investors skirting Asia

Institutions avoid emerging markets in quest for more predictable returns

Douglas Appell
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Elliot Bradbrook believes limited partners don't want to gamble with new projects in emerging markets.

    A record amount of institutional money is being committed to infrastructure investments, but only a small fraction of that bonanza is slated for new “greenfield” projects in fast-growing emerging markets in Asia.

    Of the record $93 billion in uncalled capital, or dry powder, in unlisted infrastructure funds at the end of October, $9.5 billion was dedicated to Asia ex-Australia — a roughly 10% share that has held fairly steady in recent years, noted Elliot Bradbrook, London-based manager of infrastructure data with alternatives investment research firm Preqin Ltd. (All figures in this story, unless specified, are in U.S. dollars.)

    By contrast, 45% of that pent-up demand is focused on North America, and 33% on Europe, according to Preqin.

    For the most part, limited partners in those funds are seeking “stable and predictable returns/yields from their infrastructure portfolios” — giving established, operational “brownfield” infrastructure assets in Europe and North America pride of place over yet-to-be-built “greenfield” opportunities in emerg-ing markets, Mr. Bradbrook said in an e-mailed response to questions.

    That global search for yield has left most investors focused on brownfield investments, even if “a growing minority are willing to consider greenfield,” said Duncan Hale, Sydney-based head of infrastructure research investment at Towers Watson & Co.

    And pride could come before a fall — in yields.

    Pent-up demand among institutional investors for those lower-risk operational assets in Europe, North America and Australia has produced an “obvious mismatch,” with demand far exceeding supply, noted Karen Chester, a Sydney-based partner with Mercer Investments (Australia) Ltd., and Mercer's global head of infrastructure.

    Warryn Robertson, a Sydney-based portfolio manager of Lazard Asset Management's $4 billion global listed infrastructure strategy, said his firm pegs the dry powder war chest at $150 billion — a wall of money driving competition for suitable infrastructure assets, which in turn has left managers of unlisted infrastructure funds paying premiums of as much as 20% to 30% over similar listed infrastructure assets.

    Lazard's strategy focuses on assets that have monopoly-like characteristics, are less subject to inflation risk and generally have more predictable return patterns, capable of giving superannuation and sovereign wealth fund clients less volatile returns somewhere between what bonds and stocks are offering, he said.

    SWFs thinking the same

    A number of the region's biggest sovereign wealth funds appear to be in a similar frame of mind.

    In its annual report for the year ended Dec. 31, 2012, the $575 billion China Investment Corp., Beijing, cited investments it made during the year of £276 million ($444 million) in Thames Water Utilities Ltd. and £450 million in Heathrow Airport Holdings Ltd. as generating “steady returns” and improving the portfolio's risk-return profile.

    Meanwhile, the A$91.7 billion (US$86.9 billion) Australia Future Fund, Melbourne, reported a combined 98% of its infrastructure portfolio — A$7.3 billion as of Sept. 30 — was invested in the developed markets of Australia, Europe and North America. The Future Fund's latest annual report listed a number of infrastructure investments for the 12 months through June, including the acquisition of a 30% stake in Perth Airport, citing inflation protection and “high levels of earnings certainty” as among their charms.

    While safety and stability remain the apparent watchwords, amid estimates of infrastructure investment needs of as much as $1 trillion a year in Asia over the coming decades, some money managers see scope for expanding the greenfield portion of global infrastructure funds.

    In an interview, Benjamin Haan, a senior vice president with Zug, Switzerland-based alternatives firm Partners Group AG and head of its infrastructure team in Asia, argued for diversifying a global infrastructure portfolio with more greenfield investments in emerging markets.

    Brownfield investments in developed markets are a good place to get comfortable with the asset class, but moving to add greenfield exposure in emerging markets can produce a more diversified portfolio and prove “a real return driver,” said Mr. Haan, who is based in Sydney.

    Greenfield projects, correctly chosen, can significantly enhance a global infrastructure fund's returns, agreed Mark McLean, Morgan Stanley Infrastructure's Melbourne-based head of Asia-Pacific. But if those projects account for more than 20% to 25% of a portfolio, a fund could become riskier than many institutional investors would prefer, he said.

    Greenfield has a role

    Partners Group believes about 25% of a global infrastructure portfolio should be allocated to Asia and other emerging markets, Mr. Haan said.

    The firm has roughly $450 million of its $2.5 billion book of infrastructure assets under management invested in Asia, including a solar power project in Thailand. Relatively short development periods and a willingness of consumers to pay for electricity make renewable energy one of the safest candidates for greenfield investments, he said.

    For now, however, industry veterans predict that growing institutional interest in infrastructure will remain focused on the brownfield end of the spectrum, with investors reluctant to take on greenfield exposure unless it's combined with a heavy dose of existing operating assets.

    Few investors “will want to take on single-project greenfield risk,” but many will consider taking minority stakes in infrastructure-related firms in India or China with, say, four or five operating assets, another two or three under construction and one or two under development, noted Vijay Pattabhiraman, Singapore-based chief investment officer of J.P. Morgan Asset Management Global Real Assets.

    J.P. Morgan sees scope for private investments of roughly $50 billion a year as the equity portion of anticipated annual infrastructure spending of $750 billion in Asia ex-Japan and Australia.

    Likewise, an investment in an Indian road concession, with plans to broaden the road to four lanes from two and start collecting tolls, is somewhere between a brownfield and a greenfield investment, noted Anoop Seth, the Singapore-based head of infrastructure for Asia with Sydney-based AMP Capital Investors Ltd.

    Mr. Seth conceded investor appetite for greenfield investments remains diminished since the global financial crisis, contributing to the gap between the region's growing infrastructure needs and the role that private capital is prepared to play in funding those investments.

    Brownfield not done yet

    If the weight of greenfield investments in Asia appears poised to loom ever larger within the infrastructure opportunity set, the supply of brownfield assets may yet prove elastic in key developed economies such as Australia and Japan, market veterans said.

    Recent high prices paid for brownfield investments, including the more than $5 billion purchase of leases for two Australian ports this year, could convince cash-strapped governments to offer up more facilities in the near term — leaving greenfield investments accounting for anywhere between 10% and 25% of global funds, said Mr. McLean.

    But longer term, growing institutional allocations to infrastructure could well lead investors to “take a long, hard look” at taking on more of the risk-reward trade-offs of greenfield investments, he said.

    It remains for regulators and fund managers to develop approaches for dealing with the “buildout” risk of greenfield projects, with different reward structures, to make institutional investors more comfortable in backing those projects, Mr. Seth said.

    Preqin's Mr. Bradbrook said his team's conversations with investors around the world point to a growing appetite for Asian infrastructure, as those investors seek to diversify their portfolios.

    At present, a lack of experienced Asia-based infrastructure fund managers is proving a hurdle, but one that can be expected to diminish as markets there mature and investment teams become more experienced, he said. n

    Related Articles
    Hastings adds North American investment chief
    Mercer chooses global infrastructure chief
    Lazard Asset Management taps Nomura veteran to lead Japan business
    Consortium invests $250 million in Japanese solar plant project
    Australian manager AMP Capital chooses institutional director for Europe
    AustralianSuper commits A$1.76 billion to Queensland infrastructure investment
    Partners Group names leader for new Mumbai office
    Recommended for You
    Blackstone sign, New York headquarters
    Blackstone reports record assets of $975 billion for 2022, just shy of $1 trillion goal
    Partners Group hires Tokyo head from Apollo
    Stewart Hay
    Stewart Hay joins Northleaf Capital Partners to expand private markets
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    Are Factors a Thing of the Past?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing