Heading in a new direction

Infrastructure is a young asset class – young enough to quickly adapt and move on should the situation demand it. And, boy, has it had some adapting to do over the last year or so. Having developed a head of steam in the run-up to the global financial and economic crisis, it has endured the same unpleasant hangover as other alternative asset classes in the period since (while – to look on the bright side – at the same time finding fresh opportunity amid the strife). 

At InfrastructureInvestor we were aware in a broad sense that the crisis had been a catalyst for change. What we sought to do in putting together this feature was to try to elucidate precise ways in which six key actors within the infrastructure investment universe have been forced to re-evaluate their approach. As you will find on the following pages, the groups we chose to throw the spotlight on were: developers; governments; investment bankers; lawyers; fund managers; and pensions.

In each case we identify catalysts for change and the key responses that have resulted (which are briefly summarised in the table below). Overall, the exercise confirms that infrastructure investment specialists are quick to recognise change and potential threats and work out a game plan to deal with them – the best response to a crisis.

Infrastructure investment’s game-changing developments: a summary

Sub-sector

Catalyst for change

Typical responses

Developers

Lack of debt

Avoid large investments; expansion plans on hold; attempts to reduce refinancing risk

Governments

PPP bottleneck

Reduce risk transfer to private sector; more financing guarantees; launch of state-backed lending units 

Advisers

Governments’ poor finances/pressure to sell  

Hiring spree; hot spotlight on possible conflict of interest issues

Lawyers

Market downturn

Adapt to changing nature of work – hot spotlight on restructuring, spinouts and bid mechanics; need to address skill gaps   

Fund managers

Scrutiny of GP fees

Abandonment of quasi-private equity model; consideration of fund horizons 

Pensions

Scrutiny of GP fees and under-performance

Direct investing; launch of strategic co-investment pools