What happened in Berlin

It was bustling, vibrant, great fun – and better attended than ever. We are referring – if you hadn’t already guessed – to our annual gathering of infrastructure investment professionals in Berlin. Below, we remind you of some of this year’s key talking points:

LPs want partners: The world’s most sophisticated institutional investors think of themselves as owners of infrastructure assets, not as investors in infrastructure funds. They are therefore more interested in finding business partners with whom to pursue long-term infrastructure investment opportunities, not ‘sign-on-the-dotted-line-and-leave-it-all-to-me’ fund investments. That doesn’t mean they won’t commit to funds: they can and will, but only if the proposition is one of long-term partnership with a like-minded investor. This was neatly summarised by CalPERS portfolio manager Christine Yokan: “If there’s one thing that we’ve recognised about our [infrastructure] programme it’s that we’re going to be building it by building partnerships.”

There are ‘two games in town’: There are still plenty of smaller investors out there who are less interested in direct and co-investment opportunities and more keen to find experienced managers to provide them exposure to the asset class. As our conference chairman Thomas Putter said in his closing remarks, there are “two games in town” for infrastructure fund managers: they can either opt for value creation through the purchase of infrastructure businesses which they then improve to drive higher returns; or they can seek to understand yield and invest in infrastructure assets that provide it safely and consistently. “Either way can be successful,” Putter pointed out. So ask yourself: are you a buyer of infrastructure businesses or of infrastructure assets?

The secondary market is worth watching: Institutional investors will increasingly be able to get exposure to the asset class via transactions on the secondary market. “There is a very clear secondary market available,” John Campbell of placement agent Campbell Lutyens commented to a panel of limited partners during a Q&A. He went on to say that secondary interests in infrastructure funds are available, can be placed with “real precision” and are easier to value than interests in other asset classes. Goldman Sachs’ Nigel O’Sullivan responded that he’d struggle to see why interests would go up for sale unless they’re distressed sales, while Partners Group’s private infrastructure head Michael Barben said his firm has bought some 10 interests on the secondary market already. Investors would do well to keep an eye on this market.

US pensions are coming: Renaud de Matharel, chief executive of European brownfield fund manager Cube Infrastructure, said during a panel that his fund had received a “deluge of requests from pension funds, especially US pensions,” which he said currently had “a very small share of the $250 billion global infrastructure market”. That’s good news for European general partners. As de Matharel auspiciously put it: “It is becoming very attractive for North American pensions to invest in us”.

Remember to refinance early: “Refinancing risk is a big deal now. Maturities are shorter and we will have to deal with refinancing at least two times over our life-cycle,” commented Alain Rauscher, the head of Antin Infrastructure Partners and its 10-year brownfield fund. The solution? Antin refinanced Porterbrook two years in advance of plan and Global Infrastructure Partners recently refinanced debt early for its Gatwick Airport acquisition to capitalise on good market conditions. If you don’t, you might find yourself stuck between a rock and a hard place.

Drifters be damned: Anthony Rabin, UK developer Balfour Beatty’s deputy chief executive, delivered a somewhat damning verdict on infrastructure funds. He blamed their lacklustre performance to date in part on what he called “strategy drift”, whereby fund managers “go outside of their areas of expertise”, investing in assets they don’t know well and executing bad deals. As Putter elegantly noted in his closing remarks: “Be an expert,” if you want to achieve success in this asset class.