Private equity funds are tapping into the infrastructure fund market hot on the heels of investment banks, but observers say it’s not necessarily the easiest way to make a buck. By the end of 2006, there will be more than two dozen infrastructure funds, says Private Equity Intelligence, nearly three times the number as last year, and the average fund has gone from £150 million in 2000 to £350 million in 2005. But some big-name p.e. firms have set much bigger targets. The Carlyle Group has launched one that hopes to raise $1 billion, and ABN Amro Capital and Goldman Sachs’ p.e. practice have a $1.3 billion and $3.8 billion infrastructure funds, respectively, in the pipeline. “The attraction of infrastructure lies in being a stable, reliable platform which offers lower returns than normal buyouts but at a lower level of risk,” Viane Frost, marketing head at Henderson Equity Partners – which just doubled its infrastructure assets with the acquisition of John Laing -- said in an FN interview. Some view this type of fund – utilities in particular is popular -- as safer than others because it is regulated, but that itself, says Alan Buxton of Royal Bank of Canada Capital Markets, can “bring limitations,” as an asset purchased too much above its regulated asset value may draw the unwanted attention of regulators. Still, there are plenty of infrastructure opportunities out there, especially in the U.S., which some say is terribly underinvested, but a word of warning. Frost told FN, “Infrastructure assets require work to make them profitable – it is not simply the case that you can acquire an asset, sit back and wait for decent returns.” Which mean the good manager is a bust, and as happens in any new market, already there is shortage of infrastructure talent.
