GPs: What the Eurozone crisis means for us

Infrastructure Investor gathered six European investment professionals together to discuss the impact on the asset class of developments in the Eurozone. Fundraising, refinancing and trust in counter-parties were among the subjects considered in this context.

Fears about developments within the Eurozone were at the forefront of minds as investment professionals gathered for Infrastructure Investor’s recent European Fund Management roundtable at London’s Athenaeum Hotel.

DIF Infrastructure managing partner Wim Blaasse referred to the prospect of the Eurozone losing members. “The fact that there is an open discussion that countries could leave the Eurozone is very difficult. If Italy and Spain leave, there is a serious problem. You have a big problem if you have made investments in euros and you get paid in lira or pesetas.”

Wael Elkhouly, head of asset management at EISER Infrastructure, dwelt on the difficulties of raising finance. “For those investors wishing to realise value today in the Eurozone, the current loss of confidence would inevitably have a negative impact. There are also a number of assets that have an ongoing need to be financed or refinanced and the volatility doesn’t help when it comes to sourcing additional capital.”

Renaud de Matharel, chief executive and managing partner of Cube Infrastructure, raised the issue of whether contractual partners can be relied on to meet obligations. “Interest rate volatility has increased significantly in Southern European countries because there is concern about government and local authorities’ ability to address their obligations over the long term. So when assets come up for sale, do we go ahead? The terms of the deal may be tempting, but you have this volatility.”

Alain Rauscher, founder and chief executive officer of Antin Infrastructure Partners, expressed concern over the macro-economic outlook. “If European governments opt for drastic spending cuts, like the UK government did recently, you can end up with no growth – and, if there’s no growth, you can’t repay the debt. What would we risk being faced with if all of Europe did the same? Stagflation.”

Philippe Taillardat acknowledged the impact on fundraising. He said Europeans, Canadians and Australians continue to invest “as they look to diversify and dilute their exposure to sterling”. However: “US investors have gone very quiet on Europe, they are waiting to see what happens.” Plus, he noted, there are “some concerns” expressed by limited partners over countries including Spain, Italy and Greece.

However, the roundtable participants were generally bullish on deal flow. “I can’t think of a time when there was more investment choice in terms of geographies and sectors,” said Martin Lennon, co-founder and head of Infracapital. “Deciding whether or not to invest is at least as much about the qualities of an individual deal opportunity as it is about market specifics.” He said he thought it would be “foolish” to completely rule out opportunities in Spain or Italy.

Also on a positive note, the view was expressed that infrastructure was better placed than other asset classes as investors increasingly seek relative stability and cash yield.

The roundtable also provided some fascinating insights into a range of topics including favoured markets and sectors, sovereign risk, renewable energy, bank finance, pension regulation, fundraising and fund economics. A full summary may be found here and in the December 2011/January 2012 issue of Infrastructure Investor.