Direct investment in infrastructure is a defining characteristic in Australia and Canada, but it is a “resource-heavy” undertaking, an institutional investor panel agreed on Wednesday, the first day of the Infrastructure Investor Americas 2011 gathering in New York.
Regardless, each respective panellist prized the asset class as a bastion of stable, uncorrelated returns.
The Global Investor panel: Why infrastructure now? kicked off Infrastructure Investor Americas 2011 and featured senior executives from Canada's Caisse de dépôt et placement du Québec (CDP), Australia's Queensland Investment Corporation (QIC) and the US' TIAA-CREF.
The panel shed light on the motivation behind institutional investment in infrastructure.
“The world of direct investing is a challenging one,” explained Macky Tall, vice president in charge of infrastructure investing for CDP, a $155 billion Canada-based money manager.
A partnership including CDP in 1999 purchased Highway 407 from Toronto for $3.1 billion, a historic privatisation. Tall went on to explain that 96 percent of its $6 billion infrastructure portfolio was comprised of direct investments, but characterised a public asset as “not simple to operate”.
“Every single infrastructure asset is used by the population,” Tall cautioned. “You need a unique skill set”.
Simon Cheung, a principal at QIC Global Infrastructure, being a direct investor offered “more control over our portfolio construction, transaction structure and governance”. The infrastructure investment business in Australia, Cheung explained, is “comfortable with having a controlling stake”. QIC has $57 billion of funds under management.
Tall and Cheung enthused that the asset class delivered a stable return ranging between high-end fixed income and the low-end of private equity.
“What we really look for is a long, stable cash-flow and a hedge against inflation,” explained Cheung. “There is a lower correlation with other asset classes and the defensive characteristic is attractive, particularly in the current economy”.
To Tall, infrastructure offered a “fairly predictable” return.