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LP Summit 2014: Beating the crowd

Being able to craft attractive deals outside the auction circuit has become a key success factor in today’s highly competitive infrastructure markets, investors say.

With a wall of capital now looking for infrastructure assets, where and how to source good deals has become a key issue for infrastructure fund managers and advisers, panelists said at Infrastructure Investor’s LP Summit 2014 in New York yesterday.

Michael Rose, a partner and director at asset management firm GCM Grosvenor, started by stating that “auction-based trophy assets” were currently being fiercely bid for.

Examples of this trend, investors present in the room said, included the development of Southport Terminal Complex, along the Delaware river, and Florida’s $2.32 billion I-4 Ultimate Project. The former saw 16 firms respond to Philadelphia Regional Port Authority’s Request for Expressions of Interest this week, while the latter, which reached financial close last month, originally elicited interest from seven consortia.

A more active approach to deal sourcing, panelists said, was all the more needed now that investors were increasingly willing to move up the risk spectrum in a bid to generate higher returns and foster portfolio diversification.

That would likely require building new relationships with potential sellers as well as “making things become infrastructure” by taking on a degree of construction risk, said Jeff DeBlock, a vice president at Toronto-based consulting firm Caledon Capital Management.

Speakers also underscored a growing deal flow in the secondaries market, partly prompted by limited partners’ search for liquidity amid regulatory changes following the Financial Crisis.

“We have seen great opportunities to pick up interests in the secondaries market as a limited partner,” said Grosvenor’s Rose. “One of the things we really love is complexity. Sometimes that complexity makes sellers very motivated… If you can work your way through a complex situation, you can pick up a LP interest at a very good price.”