An increasing competition for core infrastructure assets is driving change within some of the world’s largest sovereign investors, delegates heard at Infrastructure Investor’s Berlin Summit today.
John McCarthy, head of global infrastructure at Abu Dhabi Investment Authority (ADIA), singled out listed infrastructure as an attractive alternative to sought-after unlisted assets. “We’ve done it opportunistically in the past, but we want to have a more sustained approach to listed infrastructure.”
At a time when a rising number of institutions are able to write large checks, he said, the scarcity of investable opportunities in OECD countries was forcing the sovereign wealth fund’s investment strategy to change.
“Our large, low-cost capital base is no longer a USP. Now it is our ability to be flexible with respect to the products and structures we invest in, linked to our lack of defined liabilities, that offers real value to government and industrial sponsors.”
Two other areas being more seriously considered by the fund include emerging markets and greenfield investment opportunities, McCarthy said. “We have no requirement for income through the early part of the project so we can be a natural provider of capital in that sector if we can find the right entry point.”
This extra flexibility wasn’t synonymous with lack of discipline, he explained, because ADIA was managed like a 10-year fund – with similar investment windows and exit horizons as traditional private equity vehicles.
Greenfield was also an area put forward by co-panellist Uche Orji, chief executive of Nigeria’s Sovereign Investment Authority, a two-year old sovereign wealth fund with a 40 percent allocation to infrastructure.
“The nature of Africa and Nigeria in particular means that you can’t avoid greenfield. But we go into these transactions with private sector partners, which enables us to pursue commercial returns. We make sure we’re not seen as a social fund.”
He said NSIA provided a platform “that made it easy for you” to set foot in Nigeria, for example by facilitating negotiations with the government.
Relationships – and the capacity to influence fellow shareholders – were also seen as key by ADIA, which by and large acts as a minority investor in the assets it targets. Yet he didn’t think that would lead sovereign wealth funds to forge more integrated partnerships with GPs.
“We’re not constrained around a fee structure, even though we operate and think like a fund. I find it difficult to imagine that you would create a sovereign wealth fund and open it up to third party capital.”