Infrastructure Finance Opportunities Opening Up as Value of Global Deals Hits Record
Private investment has become vital to the improvement of public infrastructure, and competition for capital has become fierce. A recent report by Ernst & Young also predicts that the demand for private capital to fund roads, bridges, water projects and other public properties will continue to intensify over the next decade. Although private funding for public infrastructure is old news, E&Y says the extent and sophistication of private investment is emerging as a new asset class. Executive search firm, A.E. Feldman, says the trend is triggering demand for candidates with experience in M&A, private equity or infrastructure/project finance.
Infrastructure is a core element in the growth and development of any country, including power plants, public telecommunications systems, water purification projects, airports, railroads, toll roads and shipping terminals. Typically governments have been the sole providers of such services, but infrastructure has caught fire as an investment concept as more public-sector projects are in need of private-sector expertise and capital.
The American Society of Civil Engineers (ASCE) estimated in their 2005 Infrastructure Report Card that $1.6 trillion needs to be spent over a five-year period just to bring American infrastructure up to good condition. A recent report issued by E&Y also states that in Australia, the average cost of toll road construction has doubled in the past few years to $854 million per road project. In Brazil, national debt is running roughly 50% of GDP crippling public funding of infrastructure. And in China, state funds are heavily invested in infrastructure development but the Chinese government is also inviting foreign investors to take part in toll road, water supply, and renewable energy projects. Now, E&Y says that this huge global demand for capital to fund large-scale infrastructure projects is likely to ignite competition among governments to attract private investment.
Infrastructure financing volume grew more than 30% in 2006 to $212 billion, according to Infrastructure Journal. E&Y estimates that private sources could account for up to 15%, or $360 billion, of the capital needed for global infrastructure projects each year. “Governments urgently need funding and private-sector expertise to improve or replace aging infrastructure,” Dale Anne Reiss, Ernst & Young’s Global Real Estate Director. Moreover, the FT reports that the value of infrastructure deals has hit a record $145 billion worldwide - a staggering 180% increase from the deal level of 2000. The FT also says that PE firms account for more than half of the total volume and the pace of deals will continue as “more toll roads, airports, privatized water companies and electricity distribution groups come on the block.”
Seeing opportunity, more private equity funds, hedge funds, investment banks, commercial banks, and other global investors are beginning to invest in infrastructure. A.E. Feldman says the trend is creating infrastructure finance jobs. Opportunities are opening up for candidates with backgrounds in private equity or M&A as well as experience with credit and complex financial models.
