Friday Letter Infrastructure – how do we love thee?

Institutional investors, general partners and governments are all finding new reasons to love this burgeoning asset class. 

Participants in the municipal bond world know an “impaired” bond when they see it – the telltale sign is usually a pile of dirt where a project was supposed to be.

As the developed and developing worlds race into the new century, there will be less and less patience for infrastructure investment done the old way and a greater acceptance of what might be thought of as a private equity approach to infrastructure investment, or public private partnerships (PPP).

With estimates ranging from $10 trillion to $30 trillion needed for infrastructure to keep up with the growing global economy, there are aspects of infrastructure investment for governments, institutional investors and fund managers to get excited about.

For governments, PPPs offer an efficient way to bring capital to infrastructure projects without raising taxes, made all the more appealing by dint of the fact that many governments are cash-strapped.

Institutional investors like infrastructure because it is viewed as inflation-resistant (a major worry in today’s market), and a generator of consistent and a attractive returns – a survey from KPMG and UK researcher CREATE-Research found that global pension funds expect infrastructure to generate average returns of 12 percent – slightly higher than the 11 percent the respondents projected for private equity.

For general partners the attraction is clear. Infrastructure investment involves huge sums of money and long-term commitments. It’s real estate mixed with monopolistic business investment mixed with fixed income.

Now comes the hard part – matching all the eager capital with truly talented managers who invest it in available and viable projects.

To this end, France, Italy and Greece are three countries that have established specific ministries for seeking out partnerships from the private sector. An upcoming Infrastructure Investor conference in Berlin will feature three representatives of these governments to discuss their appetite and aptitude for securing this next wave of infrastructure capital formation:

François Bergere, Secrétaire Général, Mission d'Appui aux PPP – Ministère Economie et Finances, France
Alberto Germani, Member PPP/PFI Taskforce – Ministry of the Economy & Finance – Italy
Leonidas Korres, Special Secretary, Ministry of Economy and Finance Special Secretariat for PPP, Greece

These government experts will join dozens of fund managers and institutional investors in discussing the bold new frontier of private equity infrastructure investment. It’s an asset class that many believe will outpace both private equity real estate and private equity within 10 years.
Learn more about the Infrastructure Investor conference, to take place February 6 and 7 in Berlin here.

Also, don't forget the annual Global Private Equity Real Estate Awards will be closing in a few days. You can vote now by clicking here.