Conference Presentation, Panel
Infrastructure as an Asset Class
Milken InstituteStacey Worden, Andrew McAfee, Brian Chase, Katao Kiuna, Glenn Ireland, Chinelo Anohu-Amuzu
- Infrastructure Investment Gap: Global infrastructure finance faces staggering shortfalls, with costs in Africa adding 20–40% to traded goods and a $180 billion investment gap in Asia.
- OECD Growth Potential: The OECD estimates a 3.5% GDP shortfall in developed nations, a gap that could be bridged by adequate infrastructure financing to stimulate growth.
- Asset Class Validation: The number of institutions seriously investing in infrastructure has grown from ~15 fifteen years ago to 250 today, solidifying its status as a distinct asset class rather than a variant of fixed income or private equity.
- Ontario Teachers' Allocation Strategy: Ontario Teachers currently holds $13 billion in infrastructure assets but targets $18 billion, though they refuse to pursue uneconomic valuations despite the growth gap.
- Risk Misperceptions: Investors are increasingly recognizing that construction risks in emerging markets (e.g., Nigerian highways) can be lower than political or regulatory risks in developed markets (e.g., gas pipelines in Norway).
- Africa's Power Inflection Point: In Kenya, power grid expansion increased by 25% in a single year (500,000 households connected), a pace unachievable over the preceding 50 years, signaling a potential sector boom similar to telecommunications.
- Industrial Infrastructure Opportunities: Glenn Ireland advocates for unbundling resource infrastructure (roads, ports, pipelines) from mining projects to create "open access" utility models that mitigate political risk and attract institutional capital.
- Commodity Price Impact: Lower commodity prices are forcing mining companies to offload non-core infrastructure assets to balance sheets, creating opportunities for third-party investors to own and operate shared resources.
- Local Capital Mitigation: Chinelo Anohu-Amuzu proposes using Nigerian pension funds as co-investors to mitigate political risk, arguing that local institutional stakes reduce the likelihood of regime-driven asset seizures.
- Financing Bottlenecks: Katol Kiuna identifies debt financing as the primary barrier, noting that Development Finance Institutions (DFIs) can take seven years to close deals, causing billions in losses for brownfield projects.
- U.S. Market Complexity: Brian Chase notes that U.S. infrastructure financing is skewed by the $3.7 trillion municipal bond market, creating unique political risks involving 46,000 local government agencies and vested interests.
- Australian Asset Recycling: The Australian government utilizes an "asset recycling" model, selling mature assets to fund new projects and reinvesting proceeds to maintain a continuous cycle of infrastructure development.
- Risk Management vs. Contracting: Panelists agree that risks cannot be entirely contracted away via legal documents; successful projects require active management, often involving the operator also serving as the EPC contractor.
- Return Expectations: Equity IRRs for power projects in Kenya have historically ranged from 18% to 30%, but investors seek higher yields by moving beyond core OECD brownfield assets into "infrastructure plus" or frontier markets.
- Social Infrastructure Model: Social assets like hospitals and schools are typically funded via availability payments where governments guarantee returns, insulating investors from demand risk.
- Future Investment Focus: Panelists identified power infrastructure, transportation networks, and distributed power solutions as the highest-return opportunities for the coming years, particularly in Africa.