Global infrastructure investors have two major opportunity sets before them. In contrast to the mature, tested infrastructure assets offered by Europe, China and India host early-stage developments which, despite bullish growth projections, can require years of groundwork to understand the level and consistency of returns they can generate. It also takes some time to forge the right industry and regulatory relationships. For AMP Capital Investors, this process has taken 10 years. Its Giants Infrastructure Fund (AGIF) has taken its first step into the Chinese infrastructure market almost a decade since the manager established a presence in Beijing. Drawing on relationships with industry participants and regulators that it has formed, AGIF purchased a 19 per cent equity stake in Quijing Gas, “a listed, well-respected player in the sector,” according to AMP Capital’s global head of infrastructure and private debt, Phil Garling.
AMP Capital usually targets infrastructure assets with some form of established cashflow or track record, and AGIF was specifically set up to capture opportunities in the high-growth markets of India and China. It also has the flexibility to invest in other Asian countries. But investment opportunities in emerging markets are not even a consideration for Access Capital Advisors, which focuses primarily on mature economies to find longterm, low-risk infrastructure with stable cashflows and monopoly characteristics, says Access’ head of infrastructure group Australasia, Tom Snow. These assets are usually within countries that are part of the Organisation for Economic Co-operation and Development (OECD). “OECD countries have a much more stable re-entry environment, and because the infrastructure is heavily regulated, OECD [countries] are just more attractive because the nature of the cashflow is much more predictable,” Snow says.
Industry Funds Management (IFM), which manages about $8 billion in infrastructure assets, is also less inclined to invest in the emerging markets of China and India. Its global head of infrastructure, Kyle Mangini, categorises the investment processes suited to these markets as being “very, very specific”. “I think it’s quite important to have local knowledge and a local base,” Mangini says. “We wouldn’t invest in those markets until such a point where you had a strong team on the ground and a very, very strong understanding of the relevant local parameters.” IFM’s offshore infrastructure fund primarily targets the North America and Europe markets, but also holds some assets in Brazil and Chile. It currently has no focus on the Asia’s developing markets. One major reason is the challenges presented by their regulatory systems. “Europe generally offers a legal system that is probably better understood by Western investors than [those of ] many countries in Asia,” Mangini says.