Pension funds are eyeing U.S. infrastructure assets as an investment opportunity. Most recently, the California Public Employees Retirement System has adopted an investment policy to guide its infrastructure investments, which may include transportation, ports, energy, water and communications projects, according to Money Management Letter. The new policy will see CalPERS commit up to 3% of total market assets, or $7 billion, to infrastructure through 2010; realize an average annual return of 5% over inflation over five years; and invest in public and private infrastructure, including natural resources, utilities, and other social support services. The report quotes CalPERS Board President Rob Feckner as saying, “There are vast investment opportunities in infrastructure where we can generate solid returns for our fund while supporting essential community services that are crucial to continued economic development.”
Investors around the world see opportunity in infrastructure thanks to the asset class’s predictable long-term return profile, and the fact that budgetary constraints across the globe are encouraging governments to seek private-sector financing. The trend is opening doors for professionals with experience in project and infrastructure finance. Executive search firm, A.E. Feldman, says infrastructure finance jobs exist for candidates with backgrounds in investment banking as well as experience in analyzing and executing structured financings. The most sought after candidates are those with experience in infrastructure transactions and civic engineering. Additionally, legal jobs are opening up for attorneys with expertise in global project development and complex financial transactions.
Infrastructure is considered by most investors to be long-term, inflation proof, and run contrary to business cycles. So, despite offering lower growth than traditional private equity deals, infrastructure assets are attractive to investors like banks and pension funds because of their stable cash flow. As a result, the rising need for more and updated infrastructure coupled with continuing volatility in other asset classes is opening the door to private investment in public infrastructure - or public-private partnerships (P3). Money Management Letter quotes CalPERS Investment Committee Chair George Diehr as saying, “We’re looking for long-term economic value by providing safe, reliable, efficient, and high quality services that are vital for society.”
CalPERS isn’t the only pension fund betting on infrastructure. Some foreign pension funds that jumped into the game early have already reaped rewards, according to the NYT. The report states the $52 billion Ontario Municipal Employee Retirement System saw a 12.4% return last year on a $5 billion infrastructure investment pool, above the benchmark 9.9% (though down from 14% in 2006).
The prospect of stable returns has also attracted investors like Kohlberg Kravis, Morgan Stanley and Goldman Sachs as well. The NYT quotes Mark Weisdorf, Head of Infrastructure Investments at JPMorgan as saying, “Ten to 20 years from now infrastructure could be larger than real estate.” (The NYT also notes that in 2006 and 2007, more than $500 billion worth of commercial real estate deals were done).
Goldman Sachs’ second infrastructure fund has received strong investor interest and will likely close above the $7.5 billion target set when it came to market in April, according to Dow Jones. (The report notes Goldman’s first infrastructure fund closed at $6.5 billion in 2006 and participated in such deals as Kinder Morgan Inc. (KMI), Associated British Ports and Energy Future Holdings.)
Earlier this year, Global Infrastructure Partners (”GIP”), an independent fund set up by General Electric Co and Credit Suisse Group that invests in infrastructure assets worldwide, also announced that it raised $5.64 billion for its flagship infrastructure fund. GIP has already invested in some large scale projects, including London City Airport, port facilities in the United Kingdom and Argentina, and a liquid petroleum product storage facility in India.
Private equity is also jumping on the bandwagon. Blackstone Group (BX), Carlyle Group and Kohlberg Kravis Roberts (KKR) have all established or have begun implementing infrastructure investment practices.
Dow Jones quotes Lennine Occhino, Partner at law firm Mayer Brown LLP as saying, “I really believe infrastructure is going to be very huge. It really hasn’t been impacted by the markets and investors are taking note of that.”
A.E. Feldman’s infrastructure finance division is constantly researching industry trends and developments. To inquire about existing and future job opportunities in project and infrastructure finance, the lines of communication are open. Contact A.E. Feldman’s President, Mitch Feldman, and the firm’s expert recruiting team here.