US infrastructure investments: are they still a safe bet?
With a lack of infrastructure projects available for investment in Australia, the major not for profit super funds and their global fund manager, IFM Investors, have worked hard to secure large infrastructure projects oversees. With more than $A26.5 billion in global investments, IFM have targeted the North American region for investment in five major infrastructure projects over the last decade.
Since Donald Trump's recent election win and the promise of a $US1 trillion spending spree on infrastructure, opportunities for more Australian funded projects are looking good. However, a tumultuous first month in office that has seen travel bans, a war with the judiciary system, a fight with Mexico and some promises of hefty trade tariffs that are being touted as the 'path to a global recession', has spurred Industry Moves to ask the question 'should investment in US infrastructure projects now be regarded as 'high risk'?'
Industry Insights...
"There is a lot of uncertainty globally at the moment, some caused by Brexit and other world events. That uncertainty is something you have to deal with when investing, though we are closely monitoring the situation."
Peter Siapikoudis, Principal Consultant and Head of Infrastructure, Frontier Advisors
"The Trump administration presents somewhat of an interesting dichotomy between being an instigator or a potential disrupter of infrastructure projects. On the one hand we are observing a very strong rhetoric around a commitment to facilitate investment of up to US$1 trillion in US infrastructure projects over the next 10 years which is consistent with the government's expansionary policies but, on the other hand, we are also observing an increased focus on growth-impeding anti-globalisation and anti-competitive policies against a backdrop of broader global uncertainty and volatility.
One aspect that is undisputed is that there has been severe underinvestment in US infrastructure over the past decade and we should not lose sight of the fact that, to date, State and civic levels of government have had more influence over infrastructure investment which have often created barriers to private investment."
Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital wrote in his recent white paper President Trump: Populist or Pragmatist?
"While President-elect Trump is supportive of increased infrastructure spending, he has not proposed any strategy for funding that spending. For direct infrastructure investments, it is likely that rhetoric from Trump will encourage more deal flow in the sector. However, we will need to closely monitor any issues relating to foreign ownership of assets."
IFM Investors North American investments
Indiana Road Toll Concession Company:
Acquired the 66 year lease in 2015 for $US5.7b (10% interest sold to CalPERS in 2016). Operational since 1956 - a multi-lane, non-stop route between Chicago and the Ohio Turnpike.
Concesionaria Mexiquense (Conmex):
Acquired a 25% stake in 2015 for $US0.6b Operational since 2005 - a 110km private toll road system in a densely populated and industrial area in the northeastern region of Mexico City.
Freeport LNG:
Acquired a $US1.3b equity stake in 2014. Natural gas liquefaction facility operating a LNG receiving and re-gasification terminal in Freeport, Texas. Due to start export in 2018.
Colonial Pipeline Company:
Acquired a 15.8% stake in 2007 for $US0.6b. The largest refined products pipeline in North America, running from supply centres in the Gulf Coast to the Eastern seaboard.
Duquesne Light Holding:
Acquired a $US0.2b stake in 2006. An electricity transmission and distribution company with principal offices in Pittsburgh that supplies transmission and distribution of electricity to Southwestern Pennsylvania.
