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Opportunities and challenges in infrastructure

In putting the programme together for SuperReturn Infrastucture 2017 it has been interesting to learn of the latest developments and new trends emerging as the asset class matures. Here are some of the big talking points that are predicted to shape the sector:

Opportunities and challenges from political and economic shifts

The world has become an increasingly unpredictable place since the last SuperReturn Infrastructure conference. The new political environment we are facing has created a whole raft of challenges and opportunities for the infrastructure asset class. A big question is what will Donald Trump’s $1 trillion plan to revamp US infrastructure will actually mean for the industry. Will it unleash the flood of infrastructure opportunities that his rhetoric has promised? If this happens, it will make private investment in US infrastructure popular for years to come. Joe Baratta at Blackstone has made it clear that he is excited about the infrastructure opportunities a Trump presidency could potentially bring, and told Bloomberg TV that Blackstone’s ambition would be to raise a vehicle of up to 40 billion dollars of equity. Blackstone’s view is, unsurprisingly, “go big or go home”.

The caveat is Trump’s protectionist stance on trade which could have a negative impact.

Shifting the view to Europe, how will the reality of Brexit and the rise of populism and economic nationalism affect global commerce, and will anti-globalisation rhetoric affect investments in emerging markets? Investors are trying to ascertain what opportunities can be identified and exploited from this market dislocation and to what extent they should alter how they calculate risk.

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The effect of technological disruption

Infrastructure investors need to carefully consider the types of technological disruption that might seriously affect the long-term assets they manage. Take the subsector of transport infrastructure for example, where the likelihood of developing driverless cars is fast becoming a reality. What challenges would this create for investors holding assets like car parks, toll roads and airports? What might the development of hot solar cells to create cheap and continuous power mean for energy infrastructure? What might Mark Zuckerberg’s pledge of $3 billion to wipe out all disease by the end of the century mean for social infrastructure?

The message here is that as difficult as it is in an industry with such long duration assets, infrastructure investors need to become more nimble, entrepreneurial and opportunistic. Which projects will be sustainable in 20 years’ time? How will deal structuring and future fund models be affected by disruptive technology?

Other concerns include the spectre of cyber security which is a critical business risk, and the effect of big data on businesses.

The evolution of the asset class

The industry is in debate about defining what is core and what is non-core infrastructure. The need for more entrepreneurialism is apparent here too. Too much capital is chasing brownfield core infrastructure and there are not enough assets to meet demand, therefore they are now dangerously priced. The industry needs to get creative. There has been a marked increase in “hybrid assets” plus innovation in financing and deal structures, following the lead of the private equity world. Some might warn that this trend towards non-traditional ways of accessing opportunities is leading to style drift, blurring the lines between infrastructure and other asset classes, but does it matter? Core returns are looking increasingly disappointing due to aggressive bidding by managers. There is too much dry powder chasing assets so managers will need to move away from conventional infrastructure sectors towards hybrid assets to make a decent return. How do LPs feel about this changing definition of infrastructure? Will hybrid become the new core?

All these questions and a whole lot more will be covered in depth at SuperReturn Infrastructure, so have a look at the full programme here and I look forward to seeing you in London this September.

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