Global Investment Forum: Dealing with Asia's complexities

Asia Pacific (APAC) can seem an intimidating place for infrastructure investors due to an overwhelming diversity of demographics, regulatory regimes, market maturity and sophistication levels. This complexity – and appropriate responses – were considered at Infrastructure Investor's Global Investment Forum in Hong Kong this week.

To the question of why APAC should be on investors’ radars, there was a strong sense that the macro features of the region – a combination of predominantly young populations, with a low GDP per capita, a dire need for infrastructure, yet significant pockets of growing middle-class income to sustain growth in an environment of plentiful liquidity – were sufficiently compelling indicators that investors should not be looking away.

“I don’t see how investors can ignore the region for the future,” said Julian Vella, KPMG’s APAC regional leader.

In Japan, with its ageing population and highly developed economy but arguably rather unsophisticated infrastructure market, privatisation deal flow was cited as a powerful incentive to look closer. The country is perceived to be steadily opening up to foreign capital.

However, foreign investors were warned against trying to apply European or North American formulas to the region with regards to deal sourcing. This was one of the most common errors observed by asset managers Hastings Funds Management, Partners Group, Pantheon Ventures and consultancy firm, KPMG, which all highlighted the importance of a shift in mindset when approaching the region’s various markets.

Comparing Australia with other markets in the region, Grant Dooley, head of Asia at Hastings, said this advice should be heeded by those with experience of the highly sophisticated and mature market of Australia: “People need to be ready to be patient. All over the region, there are different types of investment from a typical Australian port or airport transaction, and it’s about making investors understand that these types of investment need to be approached in a different way,” he said.

“You really have to think longer term and try to leverage regional partnerships in the market to identify those specific investments that meet your risk-return profile. It can be a lengthy process,” he added.

There was consensus was around the need to source opportunities differently as well as identify the right time to enter and exit deals. The need for local eyes, familiar with different rules in particular countries, and local connections to governmental spheres of influence were highlighted as being essential, especially when difficulties on the ground arise which need quick reactions.

“You have to have good relationships in any market but relationships in Asia, particularly those linked to governments, can generate a sense of certainty around trying to execute on a transaction, and can also help finding opportunities because, particularly in the brownfield space, a lot of them are tied up with state-controlled operators, so it’s not an easy process,” said Dooley.

Furthermore: “To be successful in Australia, you have to be prepared to compete vigorously with many other players, you’ve got to have a lot of partnerships.”
 
“If you move to Southeast Asian markets, you have to start by understanding the categories of risk associated with participating in these markets, whether they are greenfield or brownfield opportunities – country risk, sector risk and asset risk – because there is much less transparency then in more developed markets,” added Vella.

“I think instead of looking just at the political, sovereign and economic risk associated with participating in infrastructure in these various markets it’s important to understand the underlying dynamics of that country or that market and how they actually fuel the potential for infrastructure to play a role in economic development.”