Infrastructure investor Industry Funds Management believes that 2013 could be a good year to invest in GDP-linked assets after significant investment in regulated assets in recent years.
Kyle Mangini, IFM’s Melbourne-based head of infrastructure, says that valuations for GDP-linked assets, such as airports, seaports and toll roads are at an attractive point in the cycle, particularly in Europe.
IFM recently announced its first UK airport investment, taking a 35.5-per-cent stake in the Manchester Airport Group (MAG), which owns Manchester Airport, and paying $2.4 billion for Stansted Airport in January.
“If you look at our international fund before the MAG deal, six out of seven of the assets in the that fund were regulated assets, such as water or electricity distribution,” Mangini, pictured below, told I&T News.
“We got set in that regulated space when other investors were chasing GDP-linked assets and were paying very high multiples, so we focused our efforts on a part of the market which was viewed as being very boring and we got set in the regulated space.
“Now we are in a completely different environment and other investors are chasing that regulated return, and there’s a lot of competition for those assets. So now we believe it makes enormous sense to buy GDP-linked assets at the low point in the GDP cycle, which is where we are today.”
IFM began to look at GDP-linked assets last year as it perceived more competition in the regulatory space, and as it assessed the movement in the cycle – both in terms of valuation and the economic activity that drives performance of these assets.
In the deal pipeline
Of IFM’s $39 billion in funds under management, $14 billion is in two infrastructure funds, one global and the other Australian.
Last week, IFM announced that 27 institutional investors from North America had made $2 billion in fresh commitments to the global fund, marking IFMs strongest fundraising year in that region since 2009.
This also reflected a “growing interest” in infrastructure as an asset class from offshore institutions, compared to the more widespread understanding and exposure from Australian institutions. Those new commitments were raised as part of the funding needed for IFM’s current deal pipeline, such as the MAG deal.
“We see that Europe will continue to be a very active market this year,” said Mangini.
“There is a tremendous amount of potential activity in that market and private sector capital is invested in a wide range of infrastructure assets.
“The US is starting to move in that direction, but is moving slower in smaller steps in terms of connecting the need for infrastructure with private sector capital.”