HK Summit: Less-explored markets, pre-operational assets antidote to costly infra

Investors highlighted the need for local partnerships to go deeper into unexplored geographies

Moving beyond traditional OECD markets and towards pre-operational stage assets is the best way to look for attractive, risk-adjusted returns in the current expensive infrastructure market, industry leaders told the audience at Infrastructure Investor’s Hong Kong Summit today.

“OECD brownfield assets tend to be pricey today,” Serge Lauper, managing director of BlackRock Real Assets’ Infrastructure Solutions team, admitted during the first panel of the day.

In order to hunt for new opportunities, Lauper stressed that BlackRock is looking for both large deals that few investors can afford and “smaller deals” that allow them to go “deep into the market”, in places like South Korea.

“It´s a country that has not been covered by many managers, but we see trends there that have happened in Europe before,” he said.

Similarly, Morgan Stanley Infrastructure Partners explained that, in Europe, the firm is trying to stay away from the UK towards less explored geographies, with the help of local partners.

“You need a local expert to understand the context in a particular country, and to build relationships,” Markus Hottenrott, managing director and CIO of Morgan Stanley Infrastructure Partners, explained.

Hottenrott also pointed out the firm is now more willing to invest in pre-operational assets, even during construction: “Construction equity is more attractive now that investors – and not construction companies – are pricing it.”

Speaking of opportunities specifically in Asia, Michael Barrow, director general, Private Sector Operations Department, Asian Development Bank, highlighted some successes in countries that are not traditionally on investors’ radar, like Pakistan.

“There are real risks in these Asian markets, but the perception of risk doesn’t always match the reality,” Barrow said. Despite this, he admitted the Asian market is still “narrow” and that most opportunities in the region are in the energy sector.