By Aarthi Sivaraman and Mathieu Robbins
Morgan Stanley and a fund set up by General Electric and Credit Suisse said collectively closed on nearly $10 billion for funds to invest in infrastructure.
Morgan Stanley announced the closure of a $4 billion infrastructure fund, exceeding its target, and plans to pursue assets in sectors like transportation, energy and utilities. Separately,
Despite offering lower growth than traditional private equity deals, infrastructure assets such as utilities, toll roads and airports are attractive to financial bidders such as banks and pension funds because of their stable cash flow. Financial institutions including banks ranging from Macquarie to Goldman Sachs and buyout firms like London-based 3i Group have all set up infrastructure funds or units as they try to complement other activities with such stable investments. Kohlberg Kravis Roberts entered the infrastructure fray earlier this month as well.
Such investments are viewed as so stable that pension funds such as
At $4 billion, the Morgan Stanley fund shot past its original target of $2.5 billion, pooling capital in North America, Europe, Australia, the Middle East and Asia, according to the New York-based investment bank. Investors in the Morgan Stanley fund ranged from big pension funds and insurance companies to some of the bank’s employees. The Morgan Stanley fund launch comes at a time of economic uncertainty but market conditions are “creating unique opportunities for the infrastructure sector,” Chief Investment Officer Sadek Wahba said.
“Infrastructure is now an important component of any asset allocation strategy; it offers portfolio diversification and the ability to invest in ‘real’ assets, with uncorrelated investment returns relative to other asset classes,” Morgan Stanley co-president James Gorman said.
However, despite an increasing trend of investment in infrastructure, some signs indicate even infrastructure is not immune to the credit crunch, with consultancy Deloitte saying in March the sector faces financing pressure and lower returns.
Debt tends to be important in infrastructure deals because buyers typically borrow heavily against the assets to fund their deals, not unlike LBO firms have done in recent years in riskier sectors. Infrastructure investors can then issue debt—bonds, for example—backed by the acquired company, and use the stable cashflow infrastructure businesses generate to pay the interest.
(Aarthi Sivaraman and Mathieu Robbins write for the Reuters news service.)