Infrastructure has become a growing focus of portfolios, either through listed or unlisted trusts. These trusts have invested in roads, rail, airports, ports and wind farms, and there appears to be no shortage of assets available.
Macquarie Financial Services divisional director Grant Swanger says the amount of infrastructure that can be financed by private sector investment is almost endless.
“The limit is the amount of infrastructure sourced from the public sector that the private sector wants to finance,” he says.
“For the past 20 to 30 years, governments have been finding the private sector to finance this infrastructure.”
If there was pressure to reduce this move to private funding then infrastructure would suffer — but there have been no such moves to date.
“Governments haven’t spent enough on items such as roads and they don’t have the money now to build new roads,” Swanger says.
“For example, in California they need to spend $US100 billion to meet the state’s road requirements in the future.”
However, not every part of the world needs such massive spending on roads. An example is Sydney, which has most of its major road infrastructure in place despite recent problems.
“But all the factors point to governments using the private sector and banks like Macquarie, which means the infrastructure sector will continue,” he says.
However, Swanger adds “there has to be barriers for the asset to attract private investment”.
An example is Sydney Airport, which has such a monopoly over traffic into the region that no organisation will build a second Sydney airport.
Another example is the Isle of Man Steam Packet ferry operation in the UK, which is a route that will only support one operator.
“When looking at infrastructure you want investments with stable cash flows,” Swanger says.
“Investments can also be social infrastructure that would have limited licences hence producing stable cash flows.”
As Australian investors have seen, infrastructure trusts are not limited to purely Australian assets. Most new trusts are investing in global assets and Swanger sees this continuing in 2006.
“Australian infrastructure investment managers, such as Macquarie and Babcock and Brown, are world leaders in the sector,” he says.
“Australia is very competitive in the sector, which is why we will see managers going offshore more.”
