‘There is no Asian market’ – four lessons from our HK Summit

Some of the industry’s biggest names are building regional teams and preparing to raise dedicated vehicles. But it won’t all be plain sailing.

Asia has come of age. If there is one resounding takeaway from last week’s Infrastructure Investor Hong Kong Summit, which welcomed more than 250 industry participants in its biggest ever year, that is it.

Now the dust has settled, here are four key lessons from last week’s event:

‘There is no Asian market’

This might seem like an odd opening statement, but the Asian Development Bank’s Michael Barrow hit the nail on the head when he told attendees: “There is no Asian market – every country has its own challenges.”

In fact, there are broadly two Asian markets – so-called developed Asia (your Japans and Koreas) and developing Asia (your Vietnams and Laos). Needless to say, they are very different investment propositions. Unsurprisingly, most of the foreign capital currently washing over the continent is targeting the former, even if you could argue the latter has the greater infrastructure need.

You need boots on the ground

“You need a local expert to understand the context in a particular country, and to build relationships,” Morgan Stanley Infrastructure Partners’ Markus Hottenrott said. He should know, considering Morgan Stanley is raising a dedicated Indian infrastructure fund. But almost all the industry stalwarts now focusing on Asia are setting up – or acquiring – local teams and raising dedicated pools of capital (as we reported regarding KKR on Monday).

This isn’t just common sense – it’s an absolute necessity, considering the amounts of capital now targeting the continent. “There’s so much money targeting renewables in India that the most active investors are now foreign – locals are staying away. But the core risks, such as land acquisition, haven’t really gone away,” GE Capital’s Sushil Verma warned attendees.

Or, as the IFC’s Eugene Sullivan memorably put it: “Investment selection in Indian renewables is mirroring restaurant selection, where you have to be wary of restaurants with no locals.”

When in Seoul…

“I get a lot of emails from GPs all over the world, suggesting a phone call. We don’t like phone calls. Come visit us if you’re interested in the Korean market,” Hyundai Insurance’s Jake Jong-Kwan told delegates.

To which ABL Life Insurance’s Jiroo Eoh added: “We need [managers] to approach with the right product to the right investor. Korean investors are very eager to invest overseas in infrastructure – but you need to know the right trend and the right sector.”

All of which is a polite way of saying that foreign managers looking for Korean capital need to be prepared to cater to Korean needs – and the same goes for other regional pools of capital. The latter may be relatively new to infrastructure, but they are not unsophisticated. Case in point: “All the funds we invest in have co-investment rights and from there we can figure out where the return is coming from,” said Dennis Chan, from China Ping An Insurance Overseas.

It’s all about renewables

Currently, Asia is “a narrow infrastructure market, compared with Europe – the opportunity is mostly in energy”, the ADB’s Barrow pointed out. And within energy, we’d argue the opportunity is overwhelmingly in renewables. From the above-mentioned, somewhat saturated Indian renewables market to offshore wind bright spots like Taiwan, backed by strong government policies, there is much to like in the sector.

Importantly, “renewable energy in Asia is part of the baseload plan and, in many markets, it’s more competitive than traditional energy sources”, remarked Asia Climate Partners’ Anand Prakash.

That’s not to say there aren’t challenges. Taiwan, for example, has localisation requirements that make the cost of offshore wind projects much higher than in other countries. And as GE Capital’s Verma pointed out, in some markets, investors now need to be prepared to work harder: “When we started in Japan, we didn’t take any development risk and still earned a pretty good return. Now you’d need to take development risk [to earn] a good return.”

Write to the author at bruno.a@peimedia.com. Can’t get enough of Asia? Don’t miss our upcoming Seoul and Tokyo Summits.