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Across the Americas 2011 – What Successful Infrastructure Investors Need to Know for the Year Ahead

03-08-2011 12:46 PM CET | Business, Economy, Finances, Banking & Insurance

Press release from: InfraAmericas

InfraAmericas

InfraAmericas

By Peter Allison

Infrastructure investors looking to put capital to work across the Americas are becoming a more sophisticated bunch. That was the message last week in New York at InfraAmericas’ annual infrastructure investors’ day (InfraAmericas is the sister publication to InfraNews and can be found at http://www.infra-americas.com/).

Over 220 of the top Americas deal makers and infrastructure investors exchanged views about the state of the market at InfraAmericas' third annual IIF Americas conference. They discussed the changing infrastructure investor base, the alignment of interests between GPs and LPs, or lack thereof, and differing investor strategies. They also turned their attention to how they added value to their investments, how they structured partnerships with other investors and industry strategics, and which industry sectors and geographies offered the best opportunity for growth.

InfraNews & InfraAmericas’ Content Director Peter Allison offers his thoughts on the year ahead with these 10 key observations:

(1). Institutional investors need to be absolutely certain if they are going to invest directly in infrastructure.
If an institutional investment manager opts for a direct investing program in favor of investing in infrastructure via a third party managed fund, it had better be sure of managing and executing that program. Those managers that choose this course will need to build a team of investment professionals, compensate those professionals in order that they remain motivated, and decide on a governance structure that enables investment decisions to be made quickly. Timing is everything should a direct investment team need to execute a transaction in the timeframe required in a competitive market. In short, direct investing is not for the faint-hearted. It will not be suited to many managers of public pension funds.

(2). Infrastructure investors need to decide whether they are asset accumulators, or active investors.
Accumulating infrastructure assets because those assets conveniently fit a category, is not an obvious path to returns relative to risk. An active approach, which involves taking a more creative view of infrastructure investing, will produce higher returns for a low risk. That active investing approach is typical of certain GP managed funds that creatively source investments in areas others have not thought of, or in areas where they have a comparative advantage. The complexity of the US energy sector, for example, offers opportunities for GPs with a deep understanding of the energy supply chain to make investment selections that enhance returns.

(3). Political risk in the US has not dissipated and infrastructure investors are looking further afield for deal opportunities.
The cancellation of municipal asset monetizations in the US, and most recently the failure of public parking transactions in Pittsburgh and Los Angeles, is an indication of the political risk facing infrastructure investors. The enormous resistance to monetizations in the US, even in time of terrible local and state budget conditions, has meant the market for public infrastructure transactions trails that of other countries like the UK and Australia. With the exception of energy and utility investments, the stand out transactions of 2010 for North American infrastructure investors were outside the US including CalPERS’ investment in the UK’s Gatwick Airport and the acquisition of Australia’s Prime Infrastructure by Brookfield. That trend is likely to continue.

(4). Asset valuations are rising, driven by improved conditions in credit markets and continuing interest in infrastructure from SWFs and institutional investors.
The interest being showing in the infrastructure asset class by sovereign wealth funds (SWFs), notably from Asia and the Middle East, and other institutional investors is contributing to an increase in asset values. Improved conditions in credit markets are also having an impact on that overall upward trend. This is potentially dangerous since it could encourage a return to market conditions last seen in the infrastructure market bubble of 2006-07. That period was typified by investors using excess leverage to create higher returns, a practice that is not best suited to infrastructure investing.

(5). At the moment, the energy sector has replaced transportation as the primary source of deal flow for North American infrastructure investors. But opportunities still exist outside the energy sector.
The infrastructure market in the US has evolved from one dominated by the transportation sector into one dominated by energy and utility transactions. Port, highway and parking garage deals have given way to generation, midstream, transmission and distribution deals in the energy sector. Energy infrastructure investing is in vogue, but investment opportunities remain in sectors like ports and railroads. There are also opportunities to acquire transportation assets from infrastructure funds nearing the end their life. It might also be the case that those US infrastructure assets acquired during the market bubble of 2006-07 start coming up for sale.

To read the full article, click here: http://www.infra-americas.com/analysis/opinion/843698/iif-americas-a-snapshot-of-north-american-infrastructure-investing.thtml

For more information about InfraAmericas (http://www.infra-americas.com/) and find out if you are eligible for a free trial call Ken McAllister on + 44 (0) 207 786 9282 or e-mail at subscriptions@infraresearch.com. Please remember to quote your reference: INPR3OPR.

InfraAmericas is the most relevant, timely & accurate provider of news, analysis & research about the latest greenfield & brownfield infrastructure projects & deals across the American continent.

Inframation Ltd, 1st Floor, 4 City Road, London EC1Y 2AA

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