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Pensions Filling the Infrastructure Gap?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Julie Henderson at IPE.com reports that pension funds called on to invest in infrastructure:
The UK government has called on pension funds to consider investing in infrastructure, as officials admit hundreds billions of pounds of investments is needed over the next 10 years.
Speaking at a recent conference in London on infrastructure financing, Lord Davies, minister for trade, investment and small business, admitted the UK needs to stimulate private sector investment in infrastructure as “the next decade must see a new wave of investment in key infrastructure sectors, worth hundreds of billions of pounds”.
In particular, Davies said: “It’s my personal view that we need a new capital market for infrastructure. The changes in liquidity, capital ratios, and the changes in the financial services industry are profound. And therefore the financial services industry is going to find it increasingly difficult to put long-term money into project finance. So we have got to be creative in generating new sources of income.”
He continued: My personal view is that the pension fund industry, with such enormous funds under management, is going to be critical to success.”
Pension funds across Europe do invest in infrastructure for diversification purposes, usually in a bid to partly tackle inflation hedging. Only recently, Kent County Council announced it was looking to invest £30m-£40m (€34.6m-€46.1m) in a global infrastructure mandate on behalf of its £2.2bn pension fund. (See earlier IPE story: UK roundup: including Kent)
The UK government also launched a committee known as Infrastructure UK, last December, to present ideas to the Treasury on how the planning, financing and delivery of infrastructure might be achieved.
And it is expected that further information on the government’s plans for infrastructure investment will then be revealed in the 2010 Budget, expected in March or April.
The list of projects needing financial backing is huge so officials are seeking new thinking on the financing of everything from waste treatment facilities and water infrastructure to low carbon energy systems and high speed rail.
The comments were followed by a report from Preqin suggesting the number of deals completed by unlisted infrastructure fund managers was down 33% at 130 deals over the previous years. Yet the amount of money raised was up 82%, according to the report.
The data compiled from Preqin’s Infrastructure Online service showed just 27 deals were signed between 1April and 30 September last year, and the average deal size for the whole of last year was $600m (€430m) and those worth $1bn amounted to just 15% of all infrastructure contracts signed in 2009.
Over 60% of the deals completed related to European projects and 80% were in four core investment areas: energy, telecoms, transport and utilities. The remaining money was spent in educational projects, government-related infrastructure, healthcare, logistics, and waste management, said Preqin.
Debt constrictions and lack of available assets were seen to have contributed to the contraction in the infrastructure market, according to Preqin, and conditions are still difficult as many fund managers will still be dependent on increasing equity ratios or their ability to persuade vendors to reduce their prices.
In recent days, a spate of announcements on infrastructure deals have hit the wires. The Globe and Mail reports that Ontario Teachers is readying bid for U.K. utility, Northumbrian Water Group PLC.
Christian Oliver of the FT reports that South Korea's National Pension Service, the world's fifth-largest pension fund, plans to take a 12 per cent stake in Gatwick airport next week, stressing that investment in Britain will play a significant role in quadrupling its international exposure:
The NPS, which is aiming to expand its overall portfolio from $240bn (£150bn) to $400bn by 2014, came to the attention of Britain's financial community last year when it bought the headquarters of HSBC in Canary Wharf for £773m in cash.
Jun Kwang-woo, NPS chairman, who is spearheading a sweeping international expansion, said the fund would look to increase its exposure to Britain from the current level of 1.3 per cent.
"Some infrastructure-related investment ahead of the London Olympics in 2012 could be very interesting and that could generate some momentum," said Mr Jun. "The regulatory framework is very stable and reliable."
Gatwick airport was sold late last year to Global Infrastructure Partners , an infrastructure fund backed by Credit Suisse and General Electric, for £1.51bn.
Mr Jun said that taking a 12 per cent equity stake in the airport represented an investment of a little less than £100m.
GIP said the group was pleased to have NPS as a long-term relationship investor, adding that the deal was part of plans that had been disclosed on completion of the purchase of Gatwick to sell a minority interest in the airport in its portfolio management. GIP will retain a controlling stake, the company said.
The NPS Gatwick deal is being financed with bank debt accounting for 45 per cent of the purchase price.
"We are part of a consortium. As a new kid on the block, in the early phase, we would find it more comfortable to have dependable partners," Mr Jun said. "In our investment strategy, for the time being and foreseeable future, we will look for possibilities to join forces with big international players. This is an opportunity for big financial players."
More broadly, he said that UK property continued to be attractive: "Our general attitude is that we consider that investment in the United Kingdom represents a good buying opportunity despite, quite frankly, a relatively slow recovery from the global crisis.
"If you look at the property market around the world, according to our analysis, Great Britain has already undergone quite a substantial correction, more substantial than many other places around the globe."
As well as scouting for prime office property across the world, the fund is also targeting an aggressive expansion into equities. Internationally, raw materials and energy will be another key focus.
Watching all these deals go through makes me wonder if good times are back in private markets. I doubt it. Instead, what I'm seeing is selective buying of long-term infrastructure assets, and other private assets, which may or may not turn out to be good long-term investments. What is certain is that pensions will be increasingly called upon to fill the infrastructure gap.
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Strikes me that infrastructure projects will not be good cash cows, not easily liquid and not big generators of steady returns...wonder where these increasingly insolvent funds will get the income stream...?
At the minimum - people need air, water, shelter and food. I have a moral issue with the privatization of the water delivery system. In every case where this has happened, the public (and generally a poor public) has been jammed with every cost a PE guy could come up with.
Things seem to be getting a touch desperate around the edges- maybe the pension funds should consider Capital Preservation as the first goal. Especially since each and every pension fund manager everywhere is part of the sucker parade of manages that lose money at every opportunity.
This is just a looting scheme.
We don't NEED more roads and more power lines in a past-peak oil world. We need decentralized production.
Wall street and the .gov will steal each and every dollar that they can
Leo your research kills it. So buy the HYPE!
There really is not much left to buy, other than commodities. And you have to do something with your worthless DOELARRS.
I got this interesting response by email from Jack Dean of Pensiontsunami.com:
"This looks very dangerous to me. In fact, it looks like a way for
governments to tap into pension funds under the guise of doing good."
To which I replied:
"You go that right! Also a way for pension fund managers to game their stupid private market benchmarks."
if the gman can crash the market, or like 9/11 just avert their gaze while the the naked shorts take down the financial twin towers of wall street. they can annuitize the pension fund industry, as the trust is largely underfunded. the market is a lot like a certain aging rock star, who was going to make a comeback tour which would have made a lot of corporate sponsors very rich, but when it became obvious that horse couldn't make the course, and he was worth more dead than alive,
well you know the rest. the government has been bankrolling wall street for a long time, now its time to call in its markers.
if the GMan can crash Mr Market, (or like 9/11 maybe he just lets the sharks - naked shorts aka hedge fund managers -have their way for a while, he forgets to check for plastic knives, and passports belonging real live terrorists) he can annuitize the pension fund industry (and your 401k) and get at their assets.
Is that the same Ontrario Teachers Union that ran Arclin into the ground and through the same debt-for equity BS GM went through???? Yeah, they have made a bunch of brilliant moves over the past 4 years. I want what they are having........I hear the air up there is cooooool
it occurs to me that all this noise about building infrastructure is just flat out wrong. it's not simply that Barry wants to do it, because he read it in a history book, but now the pension funds want to get their quasi bureacratic hands into the stew. electric transmission lines waste about half of everything that you feed into them, and while they are trying to make it better, the solutions burn up more energy than they save. the second infrastructure dinosaur is the transportation system, hello have you tried the internet, the whole system is one big global conference call.
the pension funds themselves are the next shoe to drop, so lets hurry up and get their money before the whole thing implodes, there's your best case scenario. worst case you say hey where's my retirment benefits and they hand you the deed to hundred feet of highway, you can name it yourself.
One question needs to be asked about "the pension system". Where does the money come from those pensions? Anybody want to make a guess? Well, there are two kinds of pensions, those that are set up by private(free market firms) and those that are public(financed by the almighty tax dollar). Oh, those teachers, firemen, policemen etc. have to be able to "get by" because their incomes will working were below par. Well now the average public employer in these United States gets paid 71k per year while the private sector is more like 42k. Does that make sense? What is going to be done about this. There are many people who are well educated and thoughtful plus being productive and we have not have had a job for 10 out of the last 12 months. Any suggestions?
OTOH, many (though not all) public employees hold skilled positions, while your number for the private sector almost certainly includes millions of Wal-Mart and McDonalds flunkies.
The Gatwick deal was a forced divesture as the previous partner (Alinda) owns part of Heathrow as well. They sold to GIP who is already about to flip it to the Koreans after owning it for a whopping 6 months. No worries, those Korean pension guys are smart money.....I'm sure they're not paying too much.
No, what's the killer is private savings(retirement funds), will be ALL lost when the UK goes BUST...............
The Infrastructure will be there, but their money will be gone.
What I wonder is: when you would build a electric pole or so with privat money, pension money that these poles will last as long at least as those people live.
Also, how will the return be on these works?
If I look to our streets, and how long they last, I wouldn't want to be the one who pays for it... EVERY FEW YEARS!
It's like investing in pumpkins after halloween!
Solar! Buy it on the dips! Solar bitchez!!!
It's funny that private equity is doing the job that the bailed out financial system is supposed to do.
This is what happens to public utilities when wall street greed gets involved.
ECONOMY
AlterNet / By Yasha Levine
Bailed-Out AIG Forcing Poor to Choose Between Running Water and Food
Thanks to AIG, some of the poorest residents of rural Kentucky learned you can always be made poorer by corporate villains.
November 26, 2009 |
What are we getting in return for the bailout? So far, predatory credit card rates, exorbitant bank fees and obscene Wall Street bonuses. But we're being robbed in other, sneakier ways, too. It seems that taxpayers in the poorest, most vulnerable parts of the county are getting plundered by the same institutions they bailed out. One example is AIG's underhanded fleecing of residents of rural Kentucky.
Middlesboro and Clinton are two tiny, impoverished towns in southern Kentucky with a combined population of 12,000. In 2008, Middlesboro's per capita income was $13,189 a year, only a few hundred dollars more than the average worker earned in third-world Mexico. That is if they were lucky to even get a job. Real unemployment hovers somewhere around 30%, and the state is so broke that half the people eligible for unemployment benefits can't receive them. Life may be tough and most people live in poverty, but that doesn't mean they can't be made a little poorer. That's the lesson locals learned after bailed-out insurance villain AIG took over their water utility and instantly raised rates to squeeze an extra $1 million in profits out of its new customers, forcing some to consider choosing between running water and food.
The towns are so rural, their residents have yet to be touched by the Internet revolution. Forget comment sections or forum threads. In Clinton, you have to track down actual hand-written notes that residents filed with city hall to read their complaints about the rate increase. Luckily, city officials were nice enough to scan some of them.
Here's one, dated August 8, 2009:
My husband and I are on a fixed income and with everything going up in price this would be very a very large burden on us as well as most of the citizens of Clinton. Our town is mostly of people like us and this would be such a hardship for us. A 50.8% raise is outrageous on anything. Please do not let this happen. It would mean the difference in bringing buying food and medicine or paying a high water bill to make someone else's life easier.
Here is how the AIG takeover went down: In 2005, flush with cash from its shady dealings in the mortgage derivatives market, AIG announced that it was in the process of acquiring Utilities Inc., a holding company that controlled scores of small water utilities across 17 different states. With just 300,000 customers, the company wasn't huge, but it boasted of being the largest privately held water utility in the country.
"We have long considered water infrastructure as an attractive investment opportunity and an excellent complement to [our] existing energy infrastructure portfolio. Utilities Inc. is a leader in this industry and we are pleased that [we have] the opportunity to acquire this business,” AIG Chairman and CEO Win J. Neuger gloated in a press release.
AIG had reason to be pleased with its purchase. Water utilities are one hell of a profitable business, with international corporations easily making a 20 to 30% profit margin, according to a 2007 report by Food and Water Watch. In the US, federal regulations limit profits to 10%, a pesky rule that companies easily subvert by shuffling their income around and “investing” it in side businesses. These kinds of returns would be the envy of the pharmaceutical and oil industries. How do water companies do it? According to Food and Water Watch, they charge 50% more for services than public utilities and pocket the difference, thereby unleashing the potential of the free market.
People who have been ripped off by bailed-out banks' schemes to trick late fees out of their customers will recognize what Utilities Inc. did to the people of Middlesboro and Clinton. In the summer of 2008, as AIG was teetering and desperate for funds, it "upgraded" its billing system, and suddenly a slew of late fee charges hit the struggling locals.
Residents had been getting their water bills like clockwork for as long as anyone could remember, but confusion and disorder set in as soon as Utilities rolled out its new and improved billing system. Monthly statements started coming late or didn't come in for months at a time. People were double-billed and double-penalized for bills that never arrived. One month, a bill would include sewer fees, the next month it wouldn't—and you'd be charged if didn't catch the omission. It's obvious the new invoice system was designed for pure harassment, creating chaos and reaping the rewards of the late fees it generated.
Internally, Utilities referred to their revamp of the billing system as "Project Phoenix." It sounded eerily similar to the CIA's "Phoenix Program," which was designed to terrorize, kill and torture uppity Vietnamese villagers into submission during the Vietnam War. One month after Project Phoenix started wreaking havoc on locals, AIG collapsed and took the first of over $150 billion in taxpayer bailout funds. That meant Project Phoenix could still go on terrorizing locals—which it did.
Utilities have long been fleecing us.
Just look at the exorbitant raises in natural gas bills this winter versus the price of the commodity natural gas.
Although my gas bill us up severely, the commodity itself has been in a downtrend for over a year now.