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Asset owners see promises, challenges in infrastructure, opportunity zone investments

Hiromichi Mizuno

Japan's $1.6 trillion Government Pension Investment Fund is considering investing in infrastructure in developing countries, said Hiromichi Mizuno, GPIF executive managing director and CIO, at the Milken Institute Global Conference on Tuesday.

Mr. Mizuno said GPIF executives are trying to expand the boundaries to develop infrastructure in emerging markets, Mr. Mizuno said, speaking on an infrastructure panel. Big asset owners like GPIF struggle to invest in infrastructure in developing countries because it will be riskier, he said.

One reason Japan's GPIF has not yet invested in emerging markets infrastructure is the difficulty finding public market comparisons such as municipal bonds, for example, he said. The public market comparisons would help GPIF officials determine what returns they would be looking for, he said.

"In reality, we don't have a comparable," Mr. Mizuno said.

Mr. Mizuno said he expects to raise the discussion on investing in high quality infrastructure, which should also have an ESG focus to be sustainable.

It should be on the top of Japan Minister of Health, Labor and Welfare Katsunobu Kato's agenda, Mr. Mizuno said.

Speaking on the same panel, Angela Rodell, CEO of the $61.9 billion Alaska Permanent Fund Corp., Juneau, said one way to encourage development of sustainable infrastructure in the U.S. could be through an opportunity zone program for infrastructure.

"It would be a way to defer capital gains and put infrastructure" in as large a state as Alaska," Ms. Rodell said.

In a separate panel Monday, Yibing Wu, joint head of the enterprise development and head of China for Temasek Holdings said that Temasek executives are now more interested in building portfolios rather than taking minority stakes in companies.

Temasek, a Singapore state-owned investment company, has S$308 billion ($226.3 billion) in assets under management.

In response to a question from moderator Timothy Dattels, co-managing partner of TPG Capital Asia and chairman of the Milken Institute's Asia Center, Mr. Wu said that the biggest investment opportunity in China is in "connecting worlds" such as health care and technology.

Indeed, health care is an area where Temasek executives see the largest application of artificial intelligence and many advancements in this area are occurring in China, he said.

Overall, the speakers on the panel pointed to China's movement from a manufacturing economy to a service economy as its population grows older.

"There is a dramatic change in the mix of the economy (in China) ... now consumption is the main driver of economic growth," said Jin Qiu, CIO, wealth service center of investment bank China International Capital Corp. Four or five years ago, investment growth was the main driver of the economy in China.

In a separate panel on opportunity zones Monday, Brent McIntosh, general counsel of the U.S. Treasury Department, said opportunity zones could grow to a $100 billion program.

"People in this room don't understand how gigantic this is," said another panelist, Manny Friedman, CEO and co-CIO of alternative investment firm EJF Capital. He said that the opportunity zone program is the biggest program he has seen in his lifetime.

"This is transformational. It will transform your life. ... it will transform America," Mr. Friedman said. "There will be losers. ... This is not about real estate. This is about massive job creation."

(EJF Capital is in the process of raising a fund to invest in opportunity zones, sources said.)

Companies will start moving into opportunity zones to take advantage of the capital gains tax treatment provided by the opportunity zones. Venture capital will move out of Silicon Valley to opportunity zones, he predicted.

Richard Ressler, co-founder and principal of real estate manager CIM Group, said some 15% of the transactions in his firm's pipeline just so happen to be in opportunity zones.

There is a downside. Some marginal transactions that have been floundering for years may be pushed "over the finish line," but it might also speed up good investments.

Doing good for society while making money requires good investments be made, Mr. Ressler said.