US bank JPMorgan Chase has recently announced that it is seeking to raise around US$1-1.5bn for its second Asia- focused infrastructure fund. We believe this announcement highlights renewed interest from private equity companies in the Asian infrastructure sector, which continues to present numerous investment opportunities for the private sector.
The unlisted fund, known as JPMorgan Asian Infrastructure & Related Resources Opportunity Fund II , is expected to focus its investments on core infrastructure assets in Asia - namely transportation, power generation, water and social infrastructure across China, India Indonesia, the Philippines, Thailand and South Korea (according to unknown sources cited by Reuters). Should it meet its fund-raising target, the fund will be almost double the size of its first fund - JPMorgan had successfully raised US$858.6mn for its first Asia-centric infrastructure fund in February 2010.
|Primarily Developed Markets Focus|
|Aggregate Capital Raised By Unlisted Infrastructure Funds, By Quarter, US$bn|
We believe this announcement highlights renewed interest from private equity companies in the Asian infrastructure sector. The poor economic conditions throughout 2012 had dampened investor interest in riskier assets such as infrastructure projects in Asia's emerging markets. Although data from consultancy firm Preqin showed that unlisted infrastructure funds secured slightly more capital in 2012 than funds closed in 2011, we believe that most of these funds were focused on developed markets.
We believe there are numerous investment opportunities for the infrastructure fund. Asia's infrastructure needs are still massive and many Asian governments remain keen to address this deficit. Some governments have already launched large-scale infrastructure-building programmes such as India, Thailand, South Korea, Indonesia and Philippines ( see our online service; India - February 25 2013, 'Infrastructure Weakness Inhibiting Construction Growth', Thailand - February 25 2013, 'Bullish Construction Outlook Tempered By Risks'; South Korea - January 11 2013, 'Construction Sector: A Better 2013'; Indonesia - January 31 2013, 'Infrastructure & Construction - Indonesia - Q2 2013'; the Philippines - February 1 2013 'Robust PPP Pipeline Supports Bullish Infrastructure Outlook' ).
|Asia Pacific - Quality Of Infrastructure*, Rank Out Of 144 countries In 2012/13 (RHS)|
Most of these Asian countries are not in a fiscal position to finance their infrastructure programmes on their own and as such, have been actively strengthening their public-private partnership (PPP) frameworks to entice greater private sector participation. Thailand, for example, is planning to introduce an amendment to its PPP laws, while the Philippines launched its largest infrastructure fund to date in 2012 ( see our online service, December 19 2013, 'Infrastructure Funds: Inching Closer To Reality', and February 1 2013, ' Robust PPP Pipeline Supports Bullish Infrastructure Outlook ). Even China, a market that has traditionally relied on state-financing for its infrastructure projects, has recognised the need for greater private participation. In June 2012, the National Energy Administration announced that it will encourage greater private investment in the Chinese energy sector by opening all energy sectors listed in the national energy plan (except those prohibited by law) to private investors.
Asia Returns Lower, Except India
However, we believe that returns for this new Asia infrastructure fund could be lower than the first fund of the family , particularly for brownfield assets. This is because on a broad-based level, infrastructure assets across Asia are more expensive than previous years. The MSCI Asia (ex Japan) Infrastructure Index, a capitalisation-weighted index that tracks listed infrastructure companies in Asia, has increased by more than 45% since the start of 2010. Furthermore, the business environment in Asia continues to exhibit numerous risks that could negatively affect the profitability of Asia infrastructure assets ( see our online service, January 10 2013, ' Risk/Reward Ratings: Infrastructure Measures Create Rewards Upside ' ).
|MSCI Asia (ex Japan) Infrastructure Index|
We believe that the second fund could continue to focus on India's infrastructure sector. This is because Indian infrastructure assets are at all-time lows -therefore presenting attractive valuations- and the first Asia infrastructure fund by JPMorgan had focused on Indian infrastructure assets ( see our online service, September 14 2011, ' Domestic Monetary Conditions Drives JP Morgan Investments' ).