You don’t get to launch a new magazine every day, and when you do, make sure you savour the moment. For us at Infrastructure Investor, the moment came this week – twice.
We started on Tuesday evening with a networking event hosted by law firm SJ Berwin in London; on Wednesday morning, a similar gathering took place in New York, where US infrastructure professionals were treated to breakfast and quality networking courtesy of Kirkland & Ellis. Combined, nearly 400 people got together to swap notes and stories. Fund managers, end investors, financiers, supranationals and even senior politicians rubbed shoulders and swapped cards; in New York, former governor of Florida Jeb Bush was in the audience.
Both events delivered high-powered discussions about the nature of the opportunities currently presenting themselves in the asset class. In London, before the party started, a panel comprising Michael McGhee from Global Infrastructure Partners, Arthur Rakowski from Macquarie, Nigel O’Sullivan at Goldman Sachs as well as SJ Berwin’s Michael Halford and Daniel Liew discussed the reasons why more and more institutional investors around the world are increasingly keen to invest in infrastructure assets.
They confirmed that present institutional thinking remains firmly in favour of the asset class, with the inevitable consequence that capital flowing into infrastructure funds will grow markedly in the coming years. O’Sullivan summed up the mood thus: “Infrastructure isn’t the only asset class out there. But at the moment, we’re recovering from the worst downturn for pension funds ever. When the dust has cleared people will look at which asset classes are appropriate. Infrastructure is clearly an attractive source of base returns plus inflation.”
However, the panelists also reminded the audience of something the market has occasionally lost sight of in recent years: the fact that infrastructure is not a risk-free asset class. Beware the use of excessive leverage, was the message – and make sure you get your performance expectations right: as many in the industry are now nursing a hangover from the credit binge of ’06 and ’07, a period of consolidation and manager shakeout looks inevitable; only after that is done can the next phase of infrastructure’s evolution start in earnest.
In New York, the focus was on the impediments to public-private partnerships (PPPs) in America. On stage were Carl McCall of the New York State Asset Maximization Commission, Trent Vichie of Blackstone, Ben Heap of UBS, 3i’s Mark Murtagh and Kirkland & Ellis infrastructure specialist Sean Patrick Maloney. They had no doubt whatsoever that the main obstacles to US PPP were mainly political in nature, with key constituencies such as regulators, labour, state authorities and municipalities not talking to each other prior to PPPs being pursued.
That said, the panel also agreed that whatever the current difficulties, ultimately US politicians will have no alternative but to embrace PPPs. The only other two choices are cutting services and raising taxes. In the meantime, suggested Jeb Bush, investors might want to focus on greenfield projects, which are less politically sensitive.
All told, both events reflected overwhelmingly positive sentiment that here is an asset class whose time has come. Needless to say that we, the Infrastructure Investor team, came away with renewed enthusiasm, new story ideas, and plenty of gratitude to SJB and K&E.
One thing that infrastructure needs in order to match buyers and sellers is better and broader communication. We aim to help deliver that with our Infrastructure Investor publications and our regional events.