Crisis and opportunity

The aftershocks of the global financial crisis may see more governments and financial institutions put assets up for sale, particularly in Europe and America.

Ireland provides an example of how sovereign wealth funds and private investors may co-invest in infrastructure. The Irish government, through its bailout deal with the International Monetary Fund and the European Union, committed to sell US$2.64 billion in state assets within the next two years. The nation’s sovereign wealth fund, the US$19.38 billion-National Pensions Reserve Fund (NPRF), has been tasked with providing seed capital for a group of funds looking to invest in infrastructure, venture capital and credit for small to medium businesses.

Eugene O’Callaghan, NPRF director, says the fund has already committed US$330.8 million to an infrastructure fund and has sought interest from investors in Asia and Australia to eventually raise $1.32 billion. He denies the NPRF could ultimately be involved in a fire sale of government assets. The Irish government is, unlike other governments around the world, just starting down the path of privatisation, he says. “We are operating on the basis that there definitely won’t be a fire sale but there will be a committed seller, so the assets are likely to be available at reasonable prices.”

Ireland is not the only cash-strapped government aiming to attract private capital. George Osborne, Britain’s Chancellor of the Exchequer, recently called on British pension funds to invest more money in domestic infrastructure projects. The United Kingdom government has flagged an overhaul of investment processes and has called for the industry’s views and feedback on what incentives would make the sector more attractive.

In the United States, legislation has been introduced to the Congress and Senate for a so-called “infrastructure bank”, an institution that would be funded with as much as $30 billion. The proposed bank would aim to partner with private investors for projects of national importance and sell bonds with terms of up to 50 years to support the institution’s ongoing operations.

Himbury says that it’s not necessary for governments to sweeten deals, but simply to provide more of them. “We are not short of capital,” he explains. “We are not short of expertise or interest in the sector. Notwithstanding a bit of a flurry of activity recently, we are short of deals globally.”