Wednesday, February 24, 2010

Private Equity: "Rough Road For Infrastructure Funds" (ABB; CAT; FWLT; FLR; PWR)

From the WSJ's Private Equity Beat blog:

Private equity firms and banks attempting to raise infrastructure funds haven’t had an easy time of it lately.

A number of infrastructure funds have been canceled in the last year or so, including ones from Royal Bank of Scotland Group PLC and Bank of Ireland Group. Other offerings, including ones from CVC Capital Partners and Kohlberg Kravis Roberts & Co., have struggled to gain traction.

And today comes word that Blackstone Group has adjusted the terms on its debut infrastructure effort, which is having a slow fund-raising campaign, to make them friendlier to investors. Blackstone Infrastructure Partners has cut the carried interest it intends to charge to 10% from 15%, and adjusted its management fees lower as well (for more details, read the LBO Wire story here).

The infrastructure market, at least for public-private partnership transactions, has been slow to develop in the U.S., and the credit crunch hurt some of the banks that are big lenders in this sector, explaining some of the struggles of these groups. But some think there are other factors at work.

Chris Beale, a managing partner at infrastructure firm Alinda Capital Partners LLC, says that the problems some groups have had fund-raising may have to do with their lack of independence from their parent organizations....MORE

It's not just private equity. From the Globe and Mail:

Infrastructure strategy falls short of hype

Over the past 12 months, stocks in this sector have merely kept up with broader indexes

It has been a little less than a year since the great infrastructure boom was launched with President Barack Obama's $787-billion (U.S.) stimulus package, promising roads, bridges and jobs, jobs, jobs. It looked like an ideal time to make an infrastructure-themed investment, and the fact that the promised building boom coincided with the final year of touches on the 2010 Winter Olympic Games in Vancouver was a bonus. How could investors go wrong?

Like many of these big-picture investment themes, the results have been mixed. Since Mr. Obama signed the American Recovery and Reinvestment Act in mid-February, 2009, North American stock market indexes have taken off. The S&P 500 index has risen a total of 40 per cent (after including dividends), as investors bet early that extraordinary measures taken to turn around the U.S. economy would work out. In Canada, the S&P/TSX composite index has risen about 41 per cent over the same period – driven in part by Canada's own stimulus spending.

By comparison, infrastructure stocks have merely kept up with this strong advance. We looked at five infrastructure stocks for companies based in the United States, Canada and Europe, and an exchange-traded fund that tracks the MFC Global Infrastructure Index. The results over the past 12 months suggest that betting big on infrastructure probably wasn't worth the effort....MORE

From ETF Trends:

Infrastructure ETFs: The Consequences of Not Spending
Infrastructure is a sector that has lacked substantial investment and any further negligence of this area may put economic growth at risk, experts believe. The renewed sense of urgency could benefit infrastructure exchange traded funds (ETFs).

Governments around the world need to increase their spending on agriculture, energy, water, transport and information technology infrastructure. But where will the money come from? [What is holding back infrastructure spending?] In the United States, stimulus money is still being deployed. [Will 2010 be the year for an infrastructure boost?]

Lloyd’s reports that underinvestment in infrastructure is one the most highly interconnected risks, among others such as:

  • Telecommunications systems are heavily relied on by many industries, most importantly emergency services.
  • Power grids are vulnerable; failures have impacted more than 50 million people in North America since 2003.
  • A lack of infrastructure spending means that disease spreads more rapidly.
  • Major port closures could occur, which would choke off world trade and have widespread consequences at a time when we need world trade most.

Shawn Langlois and William Spain for MarketWatch report that Caterpillar (NYSE: CAT) wrapped up what it said was the worst economic year it had faced in generations. This year could be better - the heavy-machinery giant is signaling a cautious outlook for 2010, after a steep drop in fourth-quarter profit.

For more stories about infrastructure, visit our infrastructure category.

  • iShares S&P Global Infrastructure Fund (NYSEArca: IGF)

  • SPDR FTSE/Macquarie Global Infrastructure 100 (NYSEArca:GII)

  • PowerShares Emerging Markets Infrastrucutre (NYSEArca: PXR)

  • iShares S&P Emerging Markets Infrastructure (NYSEArca: EMIF)