If there were more investible infrastructure projects in the United States, there would be “tremendous demand,” said Andrew Claerhout, senior vice president, infrastructure and natural resources, of the C$171.4 billion ($136.5 billion) Ontario Teachers' Pension Plan, Toronto while speaking on a panel at the Milken Institute Global Conference on Wednesday.
Part of the reason for the lack of projects is there are fewer public-private partnership opportunities available in the U.S. People in the U.S. believe infrastructure should be owned and controlled by government, Mr. Claerhout said.
The U.S. has to “take down the walls that infrastructure should be owned and built by government,” he said.
There are more public-private partnerships in emerging markets because of the lack of infrastructure financing in developing countries, noted Saadia Khairi, co-head, Asia, at IFC Asset Management Co., on the same panel, “Investing in Infrastructure: Closing the Trillion-Dollar Gap.”
However, politics can become a factor even in emerging countries. Ontario Teachers, which invests directly in infrastructure, invested in a water treatment plant in Chile about 10 years ago, Mr. Claerhout said.
The plant treated 100% of the sewage and provided people with safe drinking water. Ontario Teachers’ officials used the private ownership model to make a real difference in people’s lives, Mr. Claerhout said. However, “water is very politicizing,” he acknowledged.
“People expect it should be provided free of charge but if you provided it free of charge, the quality would be very poor. I won’t lie; there was a political backlash” that Ontario Teachers officials didn’t anticipate, he said.
Indeed, officials at the $90 billion North Carolina Retirement Systems, Raleigh, would prefer to stay away from investing in the public-private partnerships model because the “political risk is not as attractive to investors like us,” said Kathy Hahn, assistant director, opportunistic fixed-income and inflation-sensitive portfolios, speaking on the same panel.
North Carolina has approximately $5.5 billion in inflation-sensitive assets, of which about $800 million is in infrastructure. The rest of the portfolio includes oil and gas, asset-backed securities, commodities, timber and core real estate.
North Carolina invests in infrastructure through funds. The pension plan does not have the staff to invest directly, she said.
The issue that arises is most of the infrastructure funds have a private equity fee structure, and the high fees and expenses make many of the infrastructure funds less attractive, Ms. Hahn said.
Mr. Claerhout said those fees are one of the reasons Ontario Teachers has been investing directly in infrastructure assets.
During the question-and-answer session, an audience member asked Mr. Claerhout about the perception that a consortium that included Ontario Teachers, the C$77 billion Ontario Municipal Employees Retirement System, Toronto, and infrastructure manager Wren House Infrastructure Management paid too much when it bought the London City Airport. The consortium did not release the price paid, but it was widely estimated the consortium paid £2 billion ($2.9 billion).
“You pay higher current earnings because you expect the multiples to grow, and it is true of London City,” he said.
The construction of a third runway at Heathrow Airport, which is expected to take 15 years, among other things is expected to steer traffic to London City airport. Investors expect London City to grow from the fifth largest airport in London to “something more significant,” Mr. Claerhout said.
