Equity funds in crowded hunt for infrastructure returns
It is hard to find an asset class for which equity and debt appetite differ quite so starkly as they do for infrastructure. Only real estate really compares. While projects struggle to raise sufficient debt at any price, equity sponsorship is an embarrassment of riches. “The number of infrastructure equity funds on the road grows each year,” observes Richard Abadie, global head of infrastructure at PwC in London. “Furthermore, funds have significant amounts of dry powder – this is consistently the case in infrastructure.”
Lured by high-profile government infrastructure investment programmes and growing asset churn by utilities themselves, equity investors have flooded into the space. Many banks have spun their infrastructure funds off into standalone entities – for example, Eiser Infrastructure Partners was spun out of RBS/ABN Amro, and Antin Infrastructure Partners came out of BNP Paribas. HSBC’s specialist investments arm became InfrRed Capital Partners in May last year after a management buyout. On a much larger scale Deutsche Bank’s RREEF business is now under exclusive negotiations for sale to Guggenheim Partners.
Alongside these ranks of infrastructure funds clamouring for assets are an increased number of sovereign wealth funds, insurance companies and pension funds also reallocating funds to the sector. When China Investment Corp (CIC) bought nearly 9% of Kemble Water (owners of Thames Water) in January it was an indication of things to come. And even with many pension funds merely increasing their allocation from 0% to 1% there is substantial new money looking for a home in this asset class.
But the nature of this home is likely to change. "Many pension funds are investing directly now as well as going through funds," explains Daniel Wong, senior management director and head of infrastructure and utilities at Macquarie.