Tuesday, February 5, 2008

Infrastructure: a New Alternative Asset Class?

The number I keep hearing is $20 Tril. over 20 years.

From Credit Suisse:
Infrastructure is becoming a new alternative asset class, as demand is likely to run in the trillions of US dollars over the next 10 to 20 years, experts said during a panel discussion held at the World Economic Forum in Davos. Private sector involvement, notably through specialized infrastructure investment funds, will soar.

"The future of infrastructure development is a particularly topical subject. There is tremendous scope for infrastructure investments to be made," said Paul Callello, CEO of Credit Suisse's Investment Banking Division. Demand for infrastructure will run into the trillions of dollars over the next 10 to 20 years, according to Adebayo Ogunlesi, Chairman and Managing Partner at Credit Suisse's Global Infrastructure Partners (GIP) , a private equity firm specializing on infrastructure investments.

And to invest in infrastructure pays off, both for investors as well as for the countries where infrastructure is built. India's economic growth would for instance be faster than China's if the country had decent infrastructure, Ogunlesi said during a panel discussion held at the sidelines of the World Economic Forum in Davos, Switzerland. Demand for private sector financing will surge in times when governments, being the traditional financers, don't have the means or are no longer willing to finance this type of projects, Ogunlesi said.

Public sector investments in infrastructure can be problematic, mainly due to the lack of management skills or expertise, according to the experts on the panel. This gap could easily be filled by the private sector, notably through the banking sector, they said. Banks are increasingly setting up their own investment funds specializing in infrastructure investments (e.g., airports, harbors, utilities, roads)....MORE

From Wired:
Study: Climate Change Escalating Severe Western Water Crisis

A water crisis in the Western United States is primarily due to manmade global warming, and it could force difficult choices for the region as farmers, residents and biofuel producers fight for their share of water.

Sixty percent of the changes in the West's water cycle are due to increased atmospheric greenhouse gases, write scientists in a paper published Thursday in Science. Small increases in winter air temperature, the research found, reduce the amount of snow falling in mountains. In turn, snow packs that previously acted as time-release water storage provide less water as they melt in the spring.

"In a place like California, the snow pack is going away or melting earlier. We don't have enough dams to catch it all so we have to let it go out to the ocean," said Tim Barnett, a research physicist at Scripps Institution of Oceanography and the study's lead author. "All of our infrastructure has been set up to take advantage of climate the way it was, but things are changing."

The new research comes as Western states are already struggling to supply water for both their farms and cities. Increased migration to the water-poor regions of the Southwest into cities like Los Angeles, Phoenix and Las Vegas has increased the amount of water necessary to support the rising U.S. population. With such a constrained supply and rising demand, the cost of water is likely to rise, experts said. Some California farmers, responding to a record water shortage, are even beginning to consider selling their water rights, instead of their crops....MORE

Ya gotta love it, give the farmers subsidized water so they can turn around and sell the rights.
As grandpa used to say, "It beats working".

And from Portfolio.com:
The Next Asset Bubble

Infrastructure investing is growing in popularity as stocks and real estate tumble. But too much money is once again threatening to chase too few opportunities.

Gaze out your window at the cars going by. Now pretend you will be paid a quarter every time one passes.

These days, the world's largest investors are making similar calculations, and they like what they see. Stable cash flow is something to cherish, with volatility whipsawing stocks and the debt market nursing the sting of billions in collateralized debt obligations gone awry. So the once-sleepy backwater of infrastructure investment—the buying up of public roadways, utilities, airports, hospitals, and even prisons—has become fertile ground for Wall Street titans.

The problem is that the chief benefit of the investment—a safe long-term inflation-adjusted return—becomes harder to reach as more investors pile into the market seeking it.

Experts worry that prices have already been driven too high for many of the best assets. As evidence, they note that more deals are being loaded up leveraged-buyout levels of debt. At the same time, yield-hungry investors are increasingly willing to build or buy infrastructure in riskier corners of the world.

Is infrastructure fated to become the next asset bubble? Ryan J. Orr, executive director of Stanford's Collaboratory for Research on Global Projects, says: "We're already there.">>>MORE