Transcript Slide 1
Investing in Infrastructure Assets The New Funds in The Spotlight Abu Chowdhury Emerging Markets Partnership, Bahrain Emerging Markets Partnership EMP Global • Formed in June 1992 in Washington D.C. Offices in London, Hong Kong, Bahrain, Johannesburg, Abidjan and Brunei Darussalam • Leading specialist in worldwide direct investment in infrastructure • Principal adviser for US$6.9 billion of private equity funds for infrastructure • US$3.1 billion returned to investors • Sourced, structured and closed 100+ investments in over 50 countries • EMP Middle East (Dubai) to be formed to manage the Regional Energy Fund Emerging Markets Partnership EMP Global Funds Under Management • AIG* Asian Infrastructure Fund I • AIG-GE Capital Latin American Fund • AIG Asian Infrastructure Fund II • AIG Emerging Europe Infrastructure Fund • AIG African Infrastructure Fund • IDB Infrastructure Fund • Emerging Europe Convergence Fund II • EMP Africa Fund II US$1.09 billion US$1.01 billion US$1.67 billion US$0.55 billion US$0.42 billion US$0.93 billion US$0.78 billion US$0.39 billion --------------------- (1994) (1996) (1997) (2000) (2001) (2002) (2006) (2006) US$6.84 billion Funds in Progress • EMP Energy Fund *American International Group US$1.0 billion Emerging Markets Partnership Infrastructure As An Asset Class • Infrastructure assets such as railways, roads, ports, utilities etc. provide essential services, which drives the growth and development of an economy. • Characteristics: – Monopoly asset status – Captive customer base – High operating margins – Low volatility of cash flows Emerging Markets Partnership Infrastructure As An Asset Class • Drivers: – Public sector can’t afford expansion, renewal and new project developments without increased direct taxation – Private sector asset owning companies receiving increased pressure to return to core activities. – Institutional demand for long term assets to match liabilities Emerging Markets Partnership Types of Infrastructure Assets Social Infrastructure Regulated Assets User Demand Assets Competitive Assets Courts Transmission Assets Road Distribution Assets Certain Communication Infrastructure Airports Hospitals Schools Police and Army Rail Water and Sewerage Certain Power Generation Energy Trading High Risk Emerging Markets Partnership Why Do Investors Like Infrastructure as an asset class? • Predictable earnings and cash flow via regulation and/or long-term contracts; • Monopoly characteristics; • Attractive yield and growth; • Low volatility and • Low correlation of returns versus other asset classes Emerging Markets Partnership Investment Risks in Infrastructure • Asset specific Capital intensive • Political Regulatory changes • Economic Currency exposure • Social Corruption • Transactional Sponsor • Legal Rule and Law • Environmental Natural Disasters Emerging Markets Partnership Global Infrastructure Demand • Global infrastructure investment needs: – US$30 trillion for transport, energy, water and communications infrastructure by 2030. – Further US$770 billion per annum is required to provide clean water. – While around US$16 trillion is required for global energy production, transmission and distribution between 2001 and 2030. Emerging Markets Partnership Global Infrastructure Activities • Between 2003 and 2009, about US$ 90 billion was spent in European countries. • Since 2004 investment flows to infrastructure projects with private participation in developing countries grew overall by 12% to US$ 64 billion. Emerging Markets Partnership Infrastructure Investment Vehicles • Primarily three types: – Infrastructure and utility companies – Unlisted infrastructure funds – Listed infrastructure funds • Globally, there are more than 350 listed infrastructure companies representing 7% of world market capitalization. Emerging Markets Partnership An Australian Example The rapid growth of listings: Emerging Markets Partnership Listed Infrastructure Funds • A Few Examples: – Macquarie Infrastructure Group – HSBC Infrastructure Company Emerging Markets Partnership Unlisted Infrastructure Funds • A Few Examples: – AIG-EMP Asia Infrastructure Fund – Macquarie European Infrastructure Fund – IDB Infrastructure Fund Emerging Markets Partnership Comparative Risk Return Profile Return Listed Equities Private Equity, Hedge Funds, Infrastructure Development Real Estate and Infrastructure Ownership Fixed Interest Cash Risk Emerging Markets Partnership Infrastructure Vs Other Assets Classes Fixed Income Real Estate Infrastructure Private Equity • Regular return component • Tangible asset / right of use • Stable, often monopolistic • Capital intensive • Inflation hedge • Long duration • Good diversification potential • High entrance barriers • Due diligence process • High Income return • Active operative • Emphasis on cash-flow • Low risk profile • Management Emerging Markets Partnership Infrastructure Vs Real Estate • Despite there similarities (in capital outlay, operating cost, low beta and interest rate sensitivity) the differences are significant: – Infrastructure has monopoly-like characteristics. – Infrastructure has more predictable cash flows and lower risk. – Some infrastructure assets, such as tollroads, provide real returns. – Infrastructure is less mature, not as well understood and, consequently, more likely to be inefficiently priced. Emerging Markets Partnership Return Expectations within Infrastructure Sector Asset Expected Return Rail 6 - 10% + Roads 10 - 13% Airports 11 - 13% Water/Wastewater 10 - 14% Distribution/Transmission 12 - 14% Seaports 15% + Average expected return 6 - 15% + Source: Booz Allen Hamilton, Infrastructure Market, Interview Input, July 2006 Emerging Markets Partnership Advantages of Listed Infrastructure Funds • Equity market linked volatility is generally short-term • High distribution predictability • Real growth (CPI+) • Ability to match long-term pension liability profile Emerging Markets Partnership Global Infrastructure Markets Mature Developing Emerging • Czech Republic • Poland • Hungary • Mexico • Baltics • China • Latin America • Australia • UK • Ireland • US • South Europe • Canada • Germany • France • Japan • Nordic Countries Emerging Markets Partnership Globalization of the Infrastructure Market • Global Comparisons • Duration matching • Diversification • Listed Equity Managers looking for value Emerging Markets Partnership Allocations to Infrastructure Japan USA Plan to Invest in Next 3 years Germany Have a Current Allocation UK Australia 0.0% 10.0% 20.0% 30.0% 40.0% Share of repondents (%) Source: Greenwich Associates; RREEF Emerging Markets Partnership