Investors Continue to See Opportunity in Infrastructure
UBS has raised more than $1.5 billion for a new long-term infrastructure investment fund and plans another offering for next year, according to the FT. The report argues the move underscores the sector’s relative resilience to the financial crisis. The bank’s global asset management division said the committed capital it raised was more than its original target and involved a minimum investment period of 15 years. Still, worries about the debt needed to fund large scale projects, and the leverage already taken on by funds, have tarnished the sector’s appeal, notes the FT. In order to allay these concerns however, both Macquarie and Babcock & Brown - the banks that pioneered the listed model – have tightened their corporate governance rules for the funds.
Meanwhile, New York City Comptroller William Thompson says The Big Apple is exploring putting some of its pension fund of more than $100 billion into U.S. infrastructure funds and whether this is “a good time” to invest in hedge funds, reports Reuters.
Opportunity in Infrastructure
Investors around the world continue to 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.
The UBS Infrastructure fund is targeting a relatively high internal rate of return of 10-13% per year and says it is currently returning 13%, according to the FT. The report also notes the fund’s investments will focus on established infrastructure in stable, well-developed countries. In fact, it has already taken stakes in Northern Star Generation, a U.S. power generation business and UK-based Southern Water and Saubermacher, a European waste management company.
NYC Comptroller William Thompson says domestic infrastructure funds are a growth area “that will continue to see demand.” The city will look to invest in domestic infrastructure funds after making an initial investment in the asset class earlier this year, according to Reuters. Thompson said the city is “starting to make movement in that direction now” after its portfolio, which had a 44% weight in U.S. equities as of June 30th, saw its shares plunge. NYC began investing in infrastructure in April 2008 when four pensions invested in the Emerald Infrastructure Development Fund, which primarily finances alternative energy, waste management and property development projects and focuses on Northern Ireland, notes Reuters.
Tightening Corporate Governance Rules
Meanwhile, banks are moving to alleviate investor concerns about the debt needed to fund large scale infrastructure projects. Babcock & Brown announced in October it has taken steps to address concerns over poor corporate governance, making important changes to governance and fee arrangements for its infrastructure funds. The funds will be able to appoint independent executives and fire full-time executives. Babcock & Brown has also agreed to reset management and incentive fees.
“These changes have been designed to strengthen the Group’s funds management model and, together with our existing governance principles, remove the investor and other stakeholder concerns about transparency, accountability and demonstrable alignment of interests,” said Michael Larkin, CEO and Managing Director of Babcock & Brown. Larkin adds that, “Settling on these changes allows the boards and management teams of these funds to focus on addressing, where required, their capital structures in response to the difficult capital market conditions and drive the organic growth opportunities that each fund has within their existing portfolios.”
Babcock says similar changes will be discussed with the independent directors of its other listed funds as its Board continues their strategic review process.
Meanwhile, pension funds and other investors, such as insurers, are still positive about infrastructure investments, reports the FT. What’s the reason for the lingering optimism? According to the FT, these investors tend to seek long-term investments that more closely match their future liabilities than short-term equity investments do, and they do not need to be immediately able to realize cash.
The FT quotes Steve Jacobs, head of infrastructure asset management at UBS, as saying, “This is more like a stable fixed-income investment with a warrant, giving you ownership exposure, on top. In these turbulent times, investors are increasingly looking for stable, uncorrelated, inflation-resilient long-term returns.”
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.
