As AsianInvestor reported yesterday, a key theme at last weekend’s Jackson Hole gathering, where the speakers included Federal Reserve chairwoman Janet Yellen, was the suggestion that monetary policy could not be expected to solve all the problems of the world economy.
It is a message that is resonating across the globe, and one asset class that looks set to to benefit to a large extent is infrastructure.
When it comes to mobilising capital and stimulating economic growth, infrastructure is the big buzzword, especially in Asia, said Mark Tinker, head of Asia at fund house Axa Framlington.
"You’ve got China effectively saying 'we are not going to buy US treasuries any more'; [rather] we are going to build infrastructure all over Asia," he noted. "This is going to be the big one over the next five years. It is going to include infrastructure building, infrastructure financing and infrastructure bonds."
"Running out of shots"
Yesterday the former treasurer of Australia, Peter Costello, weighed in with his view on economic stimulus at a briefing for sovereign institution the Future Fund, of which he is chairman. Since the financial crisis of 2008, said Costello, the principal policy response has been monetary policy, because it’s easy to mobilise, doesn’t require legislation and is outside the political debates of the day.
“When you look at Europe or the US or even Australia, we have put incredible weight on monetary policy, but I think we are now seeing the end of its capacity," he argued. "Interest rates are practically zero. We’ve had enormous stimulation through QE. We’ve run out of shots.”
It is time for the baton to be picked up by fiscal policy – such was the view from Jackson Hole, with Yellen and other central bankers readily admitting they are running out of ways to affect the economy.
"What has been forgotten around the world is what I would call structural policy or supply-side policy," said Costello. "Other levers like trade policy, budget policy, tax policy, industrial relations policy. I’d be moving on these.”
Axa Framlington's Tinker said central banks had been trying to nudge politicians to support infrastructure investment as a structural stimulus. "I think they’d rather make tax cuts than [develop] big infrastructure projects," he noted, but there's been a shift in political sentiment towards fiscal stimulus and away from austerity measures.
"We’ve got the G20 coming up, and China is going to be talking about all the things it is doing in infrastructure," he added. "That is going to be a major boost for the global economy."
Rising infrastructure focus
The Future Fund invests chiefly in infrastructure equity, although it has some exposure to private debt. Managing director David Neal told AsianInvestor he expected the market for infrastructure investment to become broader. There will be a continued evolution in the types of infrastructure funds available as managers structure investments to meet the goals of an increasing number of allocators, he noted.
Institutional investors across the board are increasingly willing to take on illiquid assets to boost returns. That typically involves private equity, real estate and, increasingly, infrastructure debt as well as equity.
One global asset management firm told AsianInvestor it was trying to create an infrastructure investment platform in Singapore. It is working with investors in the city state to build local-currency infrastructure debt mandates and thereby provide liability- or duration-matching assets in a straightforward structure.
Once institutions can access infrastructure more easily, that will make a significant difference to fundraising and project financing.