We usually call our weekly missive the “Week In Review”. But, given that our editorial team will be on holiday during the last two Thursdays of the year, it may well be more appropriate to call it our “Year In Review”.
Expect a fuller, bigger annual review in the early months of 2010 from the editorial team of Infrastructure Investor magazine, joined by Bruno Alves, our new staff writer based in London.
But for now, here are our top five take-always on how this asset class developed in the year that was – and what awaits it in the year to come.
Infrastructure is a unique beast
It resides uneasily in a public vehicle. Limited partners don’t want it packaged in traditional private equity funds. And the right model hasn’t been agreed on. In short, there is still a lot of uncertainty on how to access the infrastructure asset class. But these debates are evidence that another, bigger question has finally been resolved: infrastructure is its own asset class. And in 2009, the momentum of institutional investors, fund managers and advisors looking to educate themselves about the attributes of infrastructure reached fever pitch. Expect more of the same in 2010.
People matter, and the ones that matter most are scarce
Everyone knows that debt was scarce in 2009. But there was another scarcity that made a big impact this year: expertise. Sure, a regulated infrastructure asset may be an easier business to value and run than, say, a financial institution like WaMu, in which private equity firm TPG lost $1.35 billion. But it is still a business nonetheless, and businesses require operational expertise to maximise their potential. In 2009, the market realized this, as both limited partners demanded and general partners sought to provide more operational expertise to their value creation strategies. But it’s pretty clear that the groups who can successfully do this are themselves still in short supply. So expect hiring in 2010 to focus on operational expertise.
The EU strikes back
It took a while but, by the end of 2009, the European Union decisively threw its weight behind public-private partnerships, with the European Commission publishing a report in November encouraging its wider use as a key way out of the recession. But even before a public announcement, the signs were already there, with the European Investment Bank taking an overarching role in keeping the market going over the course of the year. Add the many government guarantees European countries put in place to keep their pipelines from clogging and you end up with a strong, infrastructure-friendly European response to the financial crisis.
Big was not impossible
When Lehman Brothers collapsed in September 2008, global financial markets had a heart attack and lending flat-lined. Going into 2009 on life-support, many wondered if banks would be in a position to do any type of deals – let alone big ones. But then Balfour Beatty and Skanska managed to get over €1 billion of bank debt to reach financial close on the UK’s M25 road and Vinci and Meridiam got a €1 billion to close Slovakia’s R1 road. Global Infrastructure Partners scooped Gatwick for €1.7 billion and Citi Infrastructure Investors bought Itinere in a multi-billion euro deal showing that 2009 was not the year of paralysis many feared it would be when it started.
But big is more difficult than ever
Yes – despite the grim predictions, several $1 billion-plus infrastructure deals did close globally. But they took more time, more effort and more participants than ever before. In 2010, if banks’ balance sheets continue to strengthen, underwriting may well begin to replace club deals in full strength. Hopefully, though, buyers will take the lessons learned from this difficult period and carry them forward to future deals. For, much as investors like to talk about the mistakes of the past, the true test going forward will be whether they have learned from them.
From all of us at Infrastructure Investor, best wishes for the holidays and a happy new year.