Burghardt: It’s hard to reconcile infra with private equity

The name of his firm may suggest otherwise but Matthias Burghardt, head of infrastructure at Paris-based fund manager AXA Private Equity, believes that it’s difficult to make a case for private equity-style investing and fund modelling in infrastructure.

In an exclusive interview in the October 2010 issue of Infrastructure Investor (see link to “Core Values” top right), Mathias Burghardt of AXA Private Equity (AXA PE) stresses the importance of investing for the long term when teaming up with industrial partners. This, he suggests, does not sit well with a private equity approach.

“It’s very difficult to be short termist and exit driven when you team up with an industrial because they don’t want to be selling the assets,” he says. “They are in it for the long term even when they are the minority stakeholders.”

Burghardt believes that for certain deals it’s vital to have the right industrial partner alongside – highlighting AXA PE’s cooperation with VINCI on French high-speed rail deals such as the €1 billion GSM-R rail communications project that closed in February this year, and the €7.8 billion Tours-Bordeaux high-speed line contract for which AXA PE, VINCI and Caisse des Dépôts were awarded preferred bidder status in March.

Mathias Burghardt

“When we decided to team with VINCI on high-speed rail it was in the context of being the most long-term kind of investment you can make,” says Burghardt. “It was important that our partner had the ability to construct but also was a long-term concessionaire. VINCI had a more clearly defined concession strategy than many construction companies.”

Burghardt also highlights the importance of brand when it comes to acquiring assets in continental Europe. “Privatisation is a sensitive issue in many countries and, even where it’s not, people still care deeply about who is the ultimate owner of assets. We thought that having the support of the AXA brand would provide a lot of comfort to ordinary citizens as well as to public authorities.”                        
“Compared with investment banks, our image is certainly an advantage,” he adds. Being part of a bank doesn’t sit well with long-term investing when “debt and M&A mandates could put the asset manager in a difficult position” he insists.

Describing AXA PE’s approach as core infrastructure, Burghardt insists that infrastructure should have its own specific incentive mechanism when it comes to fund structuring rather than borrowing from private equity.

“In the market today you have the investment bank-affiliated funds which are 10 to 12 years and have an incentive mechanism driven by exits. They are incentivised to sell assets as soon as possible with a good multiple and not hold onto assets over the long term.”     

He adds: “For me, infrastructure is about inventing or designing a specific mechanism which will align team and investor to keep the best assets for the long term and allow them to deliver a steady yield. The conclusion of our internal brainstorming on the issue is that, ideally, carried interest should be based on the ability to deliver yield over a number of years.”