| ||||||||||
| ||||||||||
— Capital Calls —
True, it signaled just how difficult the lack of leverage has been for those in the business of infrastructure investing -- it took more than a year, and the £1.51 billion ($2.47 billion) price fell about 25% below BAA Ltd.'s expectations. But the fact that it finally pushed through bodes well for infrastructure markets, at least for select transactions. Global Infrastructure Partners is funding the deal conservatively with less than 50% debt. Less certain is the prospect for public-private partnerships in the U.S., where major projects have yet to make headway even where leverage is available. Traditional private equity firms are still exploring appropriate avenues. One hurdle: their ability to raise sufficient capital that would allow them to play a meaningful role. And it's unclear if they can structure projects where the economics make sense for everyone.
"I'm not convinced private equity has yet figured out how to make money at infrastructure investing," says George Miller, a partner at Mayer Brown LLP. Part of the quandary, he says, is whether a private equity fund's targeted returns justify the standard 2:20 fee structure (2% management fee and 20% carried interest). Many investors have been reluctant to invest in funds with the traditional 2:20 fee structure, according to London research firm Preqin Ltd.'s latest survey. Quoting one Dutch pension plan saying, "2:20 is history," Preqin says investors expect both the management fee and carry to be reduced by at least half, based on its October survey of 42 institutional investors. Certain large funds, such as Kohlberg Kravis Roberts & Co. and Blackstone Group LP, both still in the market for sizable pools, have modified their fee structures to reflect that. Interestingly, investors appear to be differentiating returns expectations based on differing risk profiles, according to another survey by San Francisco advisory firm Probitas Partners Inc. Target returns for brownfields investors are the lowest -- at 10% to 12.5% -- while a combination of rehabilitated brownfields and greenfields target returns of between 12.5% and 17.5%, says Probitas partner Kelly DePonte. Opportunistic funds, such as those that take on development or construction risks, provide more private equity-like returns of 15% or higher. Certain specialist funds such as Highstar Capital LP of New York seem to have figured out a niche, but traditional private equity investors may need to find some middle ground and be more hedge fund-like in their strategy. One project worth watching is the privatization of the Virginia Port Authority's facilities, where three groups have submitted different approaches. CenterPoint Properties Trust, owned by a California Public Employees' Retirement System subsidiary, initially sent an unsolicited bid to operate the port facilities in exchange for total payments of $8.9 billion and a current value of $3.5 billion. Washington's Carlyle Group wants to provide the VPA with "greater participation" in future profit sharing based on a 60-year concession, paying between $500 million and $700 million upfront and giving the VPA up to 40% of the profits. A third offer came from Goldman, Sachs & Co.-backed terminal operator Carrix Inc., which does not propose outright privatization but an "operational partnership," with some up-front payments, allowing Carrix to tap future opportunities for financing and monetization. "It's very complicated and will take a long time to sort out," says
Miller. But it should offer insights on how best to go about such
projects -- or not. Also see from the archives related infrastructure stories: Also see: |
The just-completed sale of Gatwick Airport Ltd. to New York's Global Infrastructure Partners would seem to allay worries in some quarters that infrastructure projects have come to a complete halt with the credit turmoil and economic recession. 
|
|
|
|
|
