Return to search

Tokyo Summit: ‘Be prepared for political volatility’

Despite rising uncertainty, panellists today underlined the potential created by data services as the ‘fourth utility’ amid strong public support for infrastructure.

With a busy electoral calendar in Europe and much yet to be known on the US President’s priorities, political volatility is not going to end anytime soon, three investment managers said during the keynote panel of Infrastructure Investor’s Tokyo Summit today.

In the US, the Trump administration, which took office earlier this year, has brought a very different outlook on politics, commented Neil Brown, director of the KKR Global Institute.

The details and implementation of Trump’s proposed policies remain unknown. However, tax reforms in the US will be a positive move from which local corporates will benefit the most, Brown noted.

President Trump’s $1 trillion plan to revamp the country’s infrastructure has attracted investors’ attention from around the world. Brown expected foreign investment in the US to increase, but taking a direct approach will not be easy without a local partner, he said.

He thought PPPs would be a major contributor to dealflow but warned that “there won’t be a book of PPP projects for investors to flip through and pick, and people have to find the opportunities themselves”.

In Europe, investors remain cautious over Brexit arrangements and elections in continental Europe. Discussions in France about Europe’s future, for example, will not end with the country’s presidential election, expected Robert Wall, a partner at Hermes Investment Management. Brown commented that European political parties, becoming more fragmented, may adopt a more inward-looking view.

“Despite such changes, however, the European infrastructure market is in good health,” said Martin Lennon, head of Infracapital. Wall echoed this view, observing that infrastructure is well suited to ride through economic cycles.

Asked about what questions they most often received from Asian investors, our panellists observed these were not always as conservative as assumed: Wall said LPs from the Far East were “ok with higher-risk investment” while Lennon noted they were happy with investing in euros and dollars.

Still, uncertainty in Europe and the US remained a concern. On a recent trip to China, Brown said, “I was asked: 'When is volatility going to stop?'. My answer was 'not any time soon'.”

Lennon thought the entire power utility value-chain would continue to offer opportunities, ranging from more mature segments – power generation and renewables, as well as distribution and transmission – to more novel sectors like energy storage.

He also referred to the communications sector, including fibre optic networks and data services, as the “fourth utility”. Amid strong public support for infrastructure, Hall concluded, these areas would allow institutional investors to tune in to fresh opportunities in the realm of regulated assets.