Last week, the infrastructure industry congregated virtually for our Japan-Korea Week, allowing GPs and LPs to connect and discuss the latest trends in Asia and the global infrastructure market.
Ahead of a fuller piece to be published in Infrastructure Investor’s October edition, here are three takeaways from last week’s events.
What’s it really worth?
LPs and GPs are struggling to solve valuation issues brought about by covid-19.
“While some sellers demand pre-coronavirus valuations, some buyers are anchored around distressed valuations,” a senior representative from a Korean LP said. “This has made the market almost muted for the past six months. The issue we currently focus on the most is forming a valuation model regarding new investments.”
While acknowledging the current discrepancy, another senior figure from a blue-chip Japanese investor added: “These issues are caused by different stances in the middle of uncertainty. When the pandemic is over, people will be better able to reach agreement on pricing.”
Korean LPs seek new mid-cap GPs
While maintaining partnerships with existing GPs is still common, most Korean LPs are trying to find new relationships.
“The more Korean investors gain experience in infrastructure investment, the more they have become interested in various mid-cap managers which have great specialty in certain sectors,” said a senior figure at a Korean LP, adding that GPs should be proactive in reaching out.
A well-known Korean asset manager added: “In the first half of the year, investments from Korean LPs were concentrated in global top-tier GPs. The LPs will have to find new GPs, even if the managers are not [part of the] global top 20. Korean investors will [also] need to grow fund-of-funds investing”.
On that note, we have our Infrastructure Investor 50 ranking – which lists the top 50 infrastructure equity GPs in the world – coming out in November.
Green is holding up well – but not everywhere
The energy transition is making progress worldwide. Just yesterday, EU Commission president Ursula von der Leyen pledged to increase the 2030 target for emissions reduction from 40 to 55 percent. She also promised 30 percent of the €750 billion EU recovery plan will be raised through green bonds, with 37 percent of funding to be invested in green projects.
Even before this latest announcement, a well-known European GP told attendees last week that he saw the EU’s efforts as a “positive opportunity to accelerate the implementation of clean energy and not [go] back to our old ways”. The manager also noted an acceleration in European power-purchase agreements, whereas previously they had mostly originated in the US.
In some developing countries, however, renewables are having a harder time, a representative from the Green Climate Fund warned.
“The renewable energy companies in developing countries are facing a severe lack of liquidity [due to covid-19]. As a global community, it is important that we foster our green resilience recovery in these developing countries.”