The Monetary Authority of Singapore (MAS) is seeking to create long-duration investment vehicles to channel institutional investor money into infrastructure and related projects in the city state and Southeast Asia, AsianInvestor can reveal.

The central bank-cum-financial regulator intends to set the vehicles up as part of a plan for the Lion city to act as a conduit of capital to investment-starved infrastructure projects in South and Southeast Asia, according to at least 12 fund managers, lawyers and asset owners.

The MAS is discussing helping create private-market infrastructure vehicles that offer long-term investment products for asset owners such as insurers, pension and sovereign wealth funds, according to people familiar with the matter.

The push to act as a purveyor of infrastructure comes as Singapore tries to wriggle out of a marked economy slowdown, courtesy in large part of the trade war between the US and China. On August 13 the Singaporean government revised lower its growth forecast for Singapore’s economy to grow between 0.0%-1.0% this year, down from a previous projection of 1.5%-2.5%.

One way Singapore believes it can offset its slowing economy is to act as the middleman for Asia’s marked infrastructure development needs. The region needs $1.7 trillion a year in infrastructure investment through 2030 to maintain its current growth rate momentum, according to estimates by the Asian Development Bank. 

Discussions about the infrastructure funds are understood to have been ongoing since the middle of last year. The objective is to create special purpose vehicles that carry the equity and debt load of a single or multiple infrastructure projects, people familiar with the matter said. It is likely that long-only investors such as pension funds, sovereign wealth funds and insurers would then invest into these vehicles as limited partners, the people said. 

The funds may also allow local and international retail investors to invest, giving them access to steady income via higher yields, executives familiar with the plans told AsianInvestor. Plus the the vehicles are expected to be set up a way that helps investors to avoid registering a notional loss under mark-to-market accounting standards.

An MAS spokesman declined to comment on the planned infrastructure investment vehicles, but underlined to AsianInvestor the organisation’s increasing interest in investing in private assets over the past year.

This included the organisation stating in November 2018 that it would set aside $5 billion to its private markets programme to fund private equity and infrastructure fund managers seeking to “either deepening their existing presence or establishing a significant presence” in the Lion City. 

In addition Teo Chee Hean, Singapore’s senior minister, told delegates at the Singapore Regional Business Forum on August 15 about the city state’s interest in acting as a catalyst for infrastructure development.

“Singapore is already a significant source of funds and expertise for infrastructure projects in the region,” he said. “Given the high cost and lumpy nature of infrastructure project financing, governments usually do not have enough resources to meet these financial needs on their own.” 

CAPITALISING ON DEMAND

Singapore has already emerged as a global listing hub for real estate investment trusts (Reits), with 80% of the investment vehicles having some or all their properties outside Singapore, according to KPMG. Plus the city has experience in creating infrastructure vehicles, given the creation of the $1.74 billion Keppel Infrastructure Trust, a listed-business trust that houses infrastructure assets. 

The emphasis on infrastructure comes as concerns rise on real-estate investment trusts amidst a tepid market. Quality real estate in Asia tend to be tightly held, and result in less liquid markets than in Europe or the US. A slack real-estate market, especially in Singapore and Hong Kong isn’t helping either. 

Singapore’s dehsire to create conduits for long-only public money into infrastructure assets could offer a better financing fit for investors and project developers alike, including its own asset owners. Its plans appear to have taken inspiration from Australia’s relative success with raising private-sector funding for public projects. 

study in December 2008 by the University of Melbourne of Australian public-private partnership (PPP) projects showed average construction cost overruns of 4.3% versus 18% for traditionally procured projects and an average construction delay at 1.4% compared to 25.9% for traditionally procured projects.

If the infrastructure vehicles do come to fruition, they could well attract regional institutional investors. Life insurers and pension funds typically have 10 to 20 year investment horizons, and they often struggle to find enough assets that promise a steady yield over the long term.

BUILDING CAPABILITIES

Singapore’s desire to become a funding hub for infrastructure would complement the actions of its own asset owners, which have been some of the key actors in private asset investments.

Temasek, Singapore’s $230 billion state fund, recently said it would continue to ramp up its private market exposure, particularly in science- and tech-related assets. And sovereign wealth fund GIC has also been an active investor in real assets, including last week's purchase of a litte over 25% stake in Australian office fund Lendlease International Towers Sydney Trust. 

It will likely need to find more, given that it was handed S$45 billion ($33.2 billion) by the MAS to invest in July, despite having expressed concerns about high uncertainty in the unsettled global investment environment.

Meanwhile the MAS regulator also encouraged private market funding platforms to support the ability of regional high-growth firms to find capital. This includes Infrastructure Asia, an agency created by the central bank and government agency Enterprise Singapore. It launched during the jamboree organised by the Lion City in October last year.  

In addition there was the signing of the Singapore Convention in early August by a number of countries, including the US, China and India, which enables the enforcement of mediated settlement agreements amongst the signatory countries. This will help give more certainty to infrastructure investors who previously faced policy uncertainty in some of the signatory countries, said a Singapore-based manager with a prominent infrastructure-focused fund who asked to remain anonymous because of the sensitivity of the talks.

The inking of the agreement, and ongoing negotiations to bring onboard additional countries would help in adding assets, particularly privately-held, in emerging markets such as India and Indonesia, the person said. Though Indonesia is not yet a signatory, experts there have advocated for the emerging market economy to join the convention.