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Sadek Wahba, the New York-based chief investment officer and global head of the fund, and John Myers, the Hong Kong-based Asia head, recently talked to FinanceAsia about infrastructure development and the fund.
Tell me about the fund.
Wahba: Our objective is to be able to invest on a global basis and today we expect to invest about 40% in the Americas, principally North America, 40% in Europe and 20% in non-OECD countries which will principally be in China and India.
Where are you looking in Asia?
Myers: Asia is a big region and there are a lot of different markets, so one has to prioritise. We are actively looking across Asia given Morgan StanleyÆs regional presence. But our fund has also chosen to focus on China and India as there will be large amounts invested there in the next 3-5 years. This means localizing our team is important to help source opportunities and execute investments. We now have a team in China and will be putting a team in India this year.
The main difference between China and India is that more of the assets in China are developed and operating. Opportunities in India are still development assets, or dealing with assets that are just operational. We have spent a great deal of time in India and the government has done an impressive job of putting in the framework to find private capital, which is encouraging.
Wahba: There is a clear correlation between strong infrastructure and growth. There are many studies from the World Bank that shows a dollar invested in infrastructure yields much more in economic growth. If you have airports you can bring in packages, ports can bring in cargo, roads enable you to transport û these allow you to import and export efficiently.
WhatÆs your investment timeline?
Wahba: We foresee about a three-year horizon. To date the fund has made three investments. In October 2006, we were selected by the city of Chicago as the preferred bidder for the 99-year concession of the Chicago downtown public parking system. The purchase price was $563 million. The parking system has a total of 9,178 spaces, located in the Loop area, it is the largest downtown underground public parking system in the US, if not the world.
In February 2007, we entered into an agreement to acquire an 80% interest in the Montreal Gateway Terminals from GermanyÆs TUI, which is a tourism and shipping group. The Port of Montreal is the third largest North Atlantic container port and serves as a key entry point for trade between Europe and Canada as well as the Midwest of the US, including Chicago and Detroit.
In February this year we announced we would take a 16.4% stake in Venice, in a company that operates airports, railway stations, motorways and ports.
In Asia our focus will be the same sectors we are looking at globally û transport, power, energy distribution, water and selected communications assets.
So it truly is a global fund. Who bought into the fund?
Wahba: A majority of our investors came from pension funds and insurance companies. Pension funds are very interested in investing in infrastructure, which allows them to match their liabilities with long term assets. The assets are typically correlated with inflation and this is an attractive selling point. These investors also like this fund because it generates yield.
A lot of pension funds in Australia and Canada have been investing in infrastructure for some time. Over the past few years interest has grown in other regions, particularly in Europe. There is clearly more interest in the asset class from the US today, but it is still behind the level as one sees in Europe and Australia.
You upsized the fund to $4 billion from $2.5 billion, why is that?
Wahba: We upsized it because $4 billion will allow us to make investments and explore more opportunities. At some point there is a limit to the size and the risk that one should take. We also want to deploy the money efficiently but within reasonable risk limits.
Aside from the obvious point that thereÆs a market for infrastructure development, why do you think people were particularly attracted to this fund?
Wahba: Being a global fund is a key advantage. Regional funds perform well but they have the same plus that is also a minus which is being too focused in terms of investing. A global fund brings you the advantage to diversify risks. It means that we can invest both across sectors and across the globe, and this is clearly attractive to investors.
Are you rigidly sticking to the 40%-40%-20% investment across the US, Europe and Asia?
Wahba: These are only targets. We have clear objectives to deploy and to build a balanced portfolio. We can also bring in limited partners to co-invest with us, so we can deploy additional capital alongside the fund.
Are you looking after three years to do this again?
Wahba: There are a lot of opportunities for a global fund as it has a lot of appeal to a broad range of investors. We believe investor interest and investment opportunities will only increase, and we expect to raise another fund after investing this one.
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