The Macquarie Group, headquartered in Australia, was one of the first to recognize the opportunity for private sector investment in infrastructure assets back in 1996. Now, more than 10 years later, this trend is exploding.
Private equity firms are establishing specialized infrastructure funds or groups. Goldman Sachs has committed more than US$6.5 billion in capital to its first infrastructure fund. The Carlyle Group has raised its first US$1.2 billion infrastructure fund, which will invest in transport and water projects in Canada and the U.S. Carlyle also formed a US$685 million renewable energy infrastructure fund with Riverstone Holdings. Morgan Stanley established an infrastructure group and announced that it was establishing an infrastructure fund. In February 2007, it agreed to acquire a significant interest in two Montreal container terminals. GE and Credit Suisse announced that they intend to establish a US$1 billion joint venture, Global Infrastructure Partners, to invest in infrastructure assets, and JPMorgan also established its own infrastructure group.
In Canada, Brookfield Asset Management recently formed its dedicated infrastructure fund, Brookfield Infrastructure Partners, and seeded it with some existing assets.
It’s not just big investment banks and asset managers looking for opportunities in this sector. Alinda Capital Partners, an independent, U.S.-based infrastructure fund managed by a group of former Citigroup employees, recently acquired UE Waterheater Income Fund in Canada. Infrastructure funds will also be competing with another class of investor—pension funds. The infrastructure asset class offers long-term, inflation-indexed returns, which typically demonstrate stability over time—perfect for pension plans. Since 1999, Borealis
Infrastructure has been identifying and managing infrastructure assets on behalf of OMERS (Ontario Municipal Employees Retirement System). Ontario Teachers’ Pension Plan has been investing in infrastructure assets since 2001, and the CPP (Canadian Pension Plan) Investment Board formed an infrastructure group in 2006.
The growth of infrastructure funds, a trend that accelerated last year, will continue in 2008 and beyond. Private equity firms, seeing the success of other investors, will likely form their own specialized infrastructure funds or groups.
Most current infrastructure and pension funds focus on existing assets in OECD countries, but with more funds being raised and competition for infrastructure assets intensifying, these funds may look beyond the traditional definition of infrastructure to assets that have infrastructure-like characteristics and returns. Financing greenfield or brownfield developments might become the new trend.
As the trend grows, infrastructure funds will need to search further and wider afield for investment opportunities, including in emerging markets. Evidence of broadening horizons can be seen in the recent establishment of infrastructure funds focused solely on India by Blackstone Group, Citigroup and JP Morgan, among others.
Billions of dollars have been amassed to invest in infrastructure assets. Canada, with its stable government and low political risk, is well-positioned to continue the trend.