Panel, Conference Presentation
Where in the World Are the Best Infrastructure Deals?
- Global infrastructure investment needs are substantial, with a projected $7 trillion shortfall in Asia over the next decade and a specific $8.6 trillion gap for emerging market power generation out of a total $49 trillion need by 2030, requiring significant private capital and government efforts to introduce assets.
- Financing mechanisms face challenges regarding regulatory regimes, speed permits, and NIMBY factors, particularly in the U.S., though a proposed 20% bonus on net proceeds for leased or privatized assets could incentivize states to sell $550 billion in assets to help meet trillion-dollar infrastructure goals.
- Returns in frontier and developing markets are expected to significantly exceed the 5% typical baseline, targeting 12% to 15%, with Brazil, Colombia, India, Africa, and the Middle East identified as key areas for investment despite political risks.
- Investment strategies involve entering emerging markets like Brazil and South Africa for high returns once systems are established, diversifying portfolios into non-core assets, and utilizing battery storage once it becomes a viable opportunity.
- Greenfield project execution requires sovereign backing and focuses on smaller assets due to a limited opportunity set, with only 2% of total equity at risk initially until exposure increases to approximately $10 million at risk per $100 million of equity.
- Operational risks include a critical shortage of local teams in emerging markets, with errors in EPC contracts or financing likely to manifest within the next 20 years if not mitigated by right local expertise.
- U.S. privatization trends are viewed as successful and continuing, with expectations for nationwide high-speed broadband privatization and the potential for airports to generate revenue through facility improvements, provided political will exists to overcome permit roadblocks.
- Capital deployment involves a pipeline carrying four times the volume of projects entering production over the next four years, aiming to create over 5,000 long-term jobs in North African investments and leveraging development banks to carry political risk.
- Technology and demographics are identified as primary drivers of future growth, with infrastructure expected to lead over the next few years due to artificial intelligence, while the critical shortage in emerging markets may eventually shift from capital to personnel.
- Investor behavior shows a preference for fund investments over direct co-investments currently, though participation is increasing in sectors like U.S. pensions which have only recently entered infrastructure over the last five years.