Small commitment, big implications

In March, Indian financial services conglomerate Kotak Mahindra Group unveiled Brookfield Asset Management as a cornerstone investor in its unlisted Indian infrastructure fund alongside Japanese banking giant Sumitomo Mitsui Banking Corporation. Kotak said the three firms will together contribute up to 22.5 percent of the fund, or $67.5 million of its stated $300 million target.

That may not sound like a lot of money, but investors privy to the history of the infrastructure asset class will appreciate the larger implication of this deal.

Because of its unique characteristics – which differ from one region to another and from sector to sector – asset managers interested in infrastructure have in the past found it convenient to invest indirectly before making their first direct investments. Australia’s Challenger Limited, for example, invested in the Macquarie European Infrastructure Fund I prior to making its first direct infrastructure investments in Northern Gas Networks and Wales & West Utilities.

The reason for these indirect investments isn’t benevolence: Challenger didn’t wish to give Macquarie money to help spur its infrastructure business. It wanted to learn more about investing in the asset class, get access to deal flow and then develop its own platform.

Brookfield may have a similar goal in mind in backing Kotak’s fund. In 2009, the firm relocated one of its executives, Anuj Ranjan, to India to build out its Indian platform. Any added contacts, opportunities and relationships that flow from the Kotak investment will only help speed up the process.

For Indian infrastructure, such developments can’t come too fast. The country’s former roads minister, Kamal Nath – who famously targeted the building of 20 new kilometers of road each day – last year estimated he’d need $48 billion of private capital over the next five years to help him reach that goal. To keep up with its needs, India will need funds to make a bigger impact. Judging by the Kotak deal, Brookfield’s on its way.