LPs want more skin in the game from Asian infra managers

Institutional investors, though upbeat about opportunities in Asian infrastructure, remain concerned about ‘alignment of interests’ at sponsored infrastructure-focused funds in the region. Others say 'too many infrastructure funds are just selling the economic growth story'.

Limited partners are interested in opportunities in Asian infrastructure but are wary of fund managers who are not putting enough of their own capital in the funds, according to delegates at PEI Media’s first-ever Asian infrastructure conference in Singapore last week. 

Managers of Asian infrastructure funds also need to have some kind of track record and a coherent investment strategy to stay attractive to LPs, said Matthew Lim, vice president of the Global Infrastructure Group at GIC Special Investments.

“Too many infrastructure funds are just selling the economic growth story,” Lim told delegates gathered at the conference.

Too many infrastructure funds are just selling the economic growth story

Matthew Lim

A panel of institutional investors at Infrastructure Investor: Asia 2009 forum also expressed several concerns about the way infrastructure funds are run in Asia. One of the primary concerns was a lack of so-called “alignment of interests” in Asian infrastructure funds. 

“Investment teams should put their own capital to work,” said Hans-Martin Aerts, head of infrastructure Asia at APG Asset Management. Another point of concern is how carried interest is divided at a firm, Aerts said.

The biggest risk involved with investments in emerging economies is regulatory risk and a sponsor situation helps in that regard. Large institutions that are sponsors of infrastructure funds often have good links with regulators and such links could make a difference for the better, according to Turan Caglayan, first vice president and head of new business Asia at DEG.

With respect to preferred regions for investments, the panelists said their firms are optimistic about the growth-oriented opportunities presented by China and India and the income-generating investment opportunities emanating from Australia.

However, there is a view that India remains more attractive than its northern neighbour. 

There are doubts over whether infrastructure investments in China will return yields of more than 20 percent, according to Ivan Bernard-Brunel, a director at AXA Private Equity Asia. The firm is most comfortable with investing in India, he said.

DEG, too, sees more room for investments in India than in China because of the latter’s has “its own money”, Caglayan said.

Though the panelists believed Indonesia could prove to be an interesting market for infrastructure investors, the regulatory framework in Southeast Asian at large is a potential bottleneck to investments in the region. 

“The jury’s still out on some other countries where opportunity sets may be large but haven’t been tapped yet,” Lim said.