Von Guionneau: UK ‘not currently a core market’ for greenfield

The InfraRed Capital Partners chief executive explains why his firm has evolved from being almost exclusively focused on the UK to having a growing presence in other markets including Asia and North America.

In a wide-ranging interview for the March 2012 issue of Infrastructure Investor (to view, click here), Werner von Guionneau – chief executive of London-based fund manager InfraRed Capital Partners – explains why the firm has transitioned from focusing on the UK market to a more international stance.

In its former guise as HSBC Specialist Investments, its first fund – which closed on £125 million (€150 million; $199 million) in 2001 – acquired almost exclusively UK-based public-private partnership (PPP) and Private Finance Initiative (PFI) assets. The lone exception was a stake in the HSL-Zuid PPP in the Netherlands, involving the construction of a high-speed rail link between Amsterdam and the Belgian border.

But, by the time InfraRed Fund III had closed on $1.2 billion in October 2011, not a single dollar of the $400 million put to work from the fund at that point had been invested in the UK. Fund III is the first fund to be raised by the re-branded InfraRed since it spun out of HSBC last year.

In the interview, von Guionneau cited the drying up of long-term bank finance for the diminishing importance of the UK for new deals. “The UK needs to find a solution for debt funding and PPPs will not take off again in a material volume until that changes,” he says. “The UK is not a core market at the current time [for primary deals]. The secondary market is healthy at the moment but it follows the primary market by about five to seven years, so eventually it will also dry up if no new assets are being built.”

Von Guionneau’s view is that the UK needs to overcome “structural issues” such as the reduced appetite of banks for long-term lending in light of the increased capital weighting demands under the Basle III regulations, and also the near-disappearance of the monoline insurers which means investors “have no way to get into the long-term funding market in the way that they used to”.

He adds: “There are currently no market participants undertaking proper risk assessment for PPP debt which have interest alignment with long-term institutional investors.”

Indicative of the firm’s geographic repositioning, it shifted to non-sterling denominated funds with its Environmental Infrastructure Fund, which closed on €235 million in 2009. Then came the dollar-denominated Fund III two years later.

While Europe remains a target region for Fund III, it is also pinpointing opportunities in North America, Singapore, Hong Kong and Australia. The firm now has offices in Paris, New York and Hong Kong as well as London.