Private Infrastructure Investment on a Growth Path, Talent in Demand
New Jersey Governor Jon Corzine recently announced $2.8 billion in infrastructure improvements that he said will not only improve the state’s schools, bridges and roads, but will also stimulate the economy and create as many as 26,000 jobs. “If we are going to provide relief from the national recession, we need to keep New Jerseyans working and keep local economies strong,” Governor Corzine said in a statement. “We need boots on the ground. We need shovels in the dirt. These are the projects we need to get under way to help bridge the recession while providing the long-term benefits of an improved transportation infrastructure.” New Jersey isn’t alone. Private investment in infrastructure will become more common as local governments confront their mounting infrastructure needs, according to Standard & Poor’s.
Despite economic uncertainty, 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. A.E. Feldman also reports the jobs opening up specifically include CEOs with proven records of running infrastructure companies, particularly in alternative energy, waste and waste management. Additionally, legal jobs are opening up for attorneys with expertise in global project development and complex financial transactions.
Infrastructure Investment on a Growth Path
Private Investment into infrastructure will continue on a growth path as the infrastructure funding gap continues to widen, according to Standard & Poor’s (S&P). An October 29th, report on infrastructure by S&P says that under current conditions, public spending on infrastructure will “take a back seat” for the foreseeable future and that U.S. transportation infrastructure will incur a funding shortfall over the next five years of $1.5 trillion.
“The federal government is already spending billions of dollars each month to pay for the wars in Iraq and Afghanistan, to fund a Treasury Department-led rescue package designed to prop up ailing banks and pump more than $1 trillion into the economy, and to repay a national debt running at ten times that amount,” the report states.
The S&P report goes on to say that governments in the U.S. and Latin America are increasingly turning to private investors as local governments confront their mounting infrastructure needs.
Meanwhile, a separate report conducted by Probitas Partners argues that $94 billion in infrastructure funds are coming to the market in the next 12 months, according to Infrastructure Investor. In the report, Probitas counted 63 funds worldwide, more than half of which are targeting upwards of $1 billion and expecting annual returns of between 10% and 12%. Most of the funds will focus on developed countries with much of the capital being directed at North America and Europe, although India and the Middle East are also garnering strong interest.
Actual funds raised have continued to stay strong despite the difficult market environment, according to Probitas. A total of $21.5 billion has been raised in the sector in the first nine months of the year. The amount is already more than the 2006 total of $17.9 billion, though it is just shy of the $34.3 billion raised last year. By comparison, in 2004 just $2.4 billion was raised by infrastructure funds.
The top ten of Probitas’ infrastructure fund list (ranked by target size) includes:
- KKR Infrastructure Fund - US$10bn
- GS Infrastructure Partners II - US$7.5bn
- Macquarie Infrastructure Fund III- €6.5bn
- Macquarie Infrastructure Partners II- US$6bn
- Citigroup Infrastructure Investors - US$4bn
- GS European Infrastructure Fund - €3.9bn
- aAim Infrastructure Fund- £3.2bn
Infrastructure Investors quotes Kelly DePonte, a Parter at Probitas, as saying, “It’s pretty typical of what we’ve seen over the last few years. The largest funds coming to market are the large global funds and as you go down the list, the smaller funds there are going to be more [region] specific.”
Staffing Up
Probitas reports that although infrastructure investing is a relatively new activity for the majority of institutional investors (especially in the U.S.), a survey of senior investment executives from Public & Corporate Pension Plans, Fund-of-Funds Managers, Family Offices, Endowments & Foundations, Consultants & Advisors, Insurance Companies and other agencies show they are extremely interested in the sector. More than one-third, 36%, of survey respondents already had active infrastructure investment programs in place and nearly half confirmed that they were either actively considering infrastructure investing or would opportunistically do so in the future.
As investors explore infrastructure and migrate to a dedicated infrastructure allocation, they also begin to hire dedicated investment staff, according to Probitas. The report states this reflects a market where the majority of investors have just recently gone through the early stages of transition to greater in-house specialization.
Most recently, 3i hired a new senior executive to lead its push into North American growth and infrastructure investments, according to Private Equity Analyst. Bob Stefanowski, a 14-year General Electric veteran who most recently headed the firm’s European corporate finance division, has been appointed to the position as the firm reorganizes its regional structure and plans to double assets under management to $28 billion by 2010. 3i operates an infrastructure team in New York, while the firm’s buyout team is only based in Europe and Asia.
Kohlberg Kravis Roberts & Co. also hired Simon Hipperson in September as a senior member of its infrastructure team, according to Private Equity Analyst. The report states it’s the firm’s first hire in Europe as part of its initiative to invest in infrastructure assets globally, citing a person familiar with the situation. KKR launched the initiative to invest in infrastructure back in May. The expanding investment team eventually will have a presence in Europe, Asia and the U.S.
Looking Ahead
Infrastructure investing as a recognized allocation within institutional investors’ portfolios is a recent but growing phenomenon for the majority of investors, especially in the U.S., according to Probitas. The report argues it has been gaining significant momentum over the last few years for two basic reasons:
- The strong demand by institutional investors (especially pension plans) for current income generating, long-term assets that better match their long-term liabilities.
- The need for governments globally to find alternative financing methods to build, maintain and operate public sector infrastructure.
Looking ahead, Probitas concludes that investor interest in infrastructure remains strong, with more investors putting in place dedicated programs with separate infrastructure allocations. Investors are also most interested in the developed markets of the world, and the majority of investors, especially those with experience in the sector, are targeting returns of 10% to 15%.
Are you working in Project & Infrastructure Finance? If you want to grow your career or your company’s bottom line, contact A.E. Feldman’s President, Mitch Feldman, now. Find out more about Infrastructure Jobs today!
