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Infrastructure - Sustainability. Opening Remarks William (Bill) Tharp. March 7 th 2007 University of Toronto – Environmental Finance. Evolution of Infrastructure Markets. Source: Peter Salisbury, Chair, The Quantum Leap Company Limited. - PowerPoint PPT Presentation
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Infrastructure - Sustainability
March 7th 2007University of Toronto – Environmental Finance
Opening RemarksWilliam (Bill) Tharp
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Evolution of Infrastructure Markets
• “Infrastructure” has different meanings with many regional nuances, however, as a generalisation…..
• “Infrastructure” means:– Privatisation of publicly owned assets– Private Finance Initiatives (PFIs) / Public Private Partnerships (PPPs) and– Project leases &/or concessions
Since WWII, public sector infrastructure capital expenditure hasbeen reducing (as a % of GDP) in OECD countries
Since WWII, public sector infrastructure capital expenditure hasbeen reducing (as a % of GDP) in OECD countries
• “Infrastructure Markets” refers to the debt and equity provided to the private owners• Early adapters, in the modern era, were:
– UK : Privatisation (by IPO) in the 1980’s / PFI in the 1980’s / 1990’s– Australia : Tollroad concessions in the late 1980’s >> Privatisation (by trade sale) in the early 1990’s– Spain : Tollroad concessions in the 1970’s and 1980’s– France / Italy : Tollroads and municipal assets - selectively…
Source: Peter Salisbury, Chair, The Quantum Leap Company Limited
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19th Century in Quebec• Tollgates were established on major routes into Montreal and Quebec City
• 20th Century brought income tax and public expenditure• Modern era of private infrastructure investment probably started in earnest in 1980’s in the UK
Source: Peter Salisbury, Chair, The Quantum Leap Company Limited
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The Equity Vacuum Is Big But Is Being Filled …
• Mid 1990’s equity vacuum (apart from utilities - NB Utilities also went into vacuum in late 1990’s)• Large financial investors now focussing on infrastructure
– CPP, OTPP, Borealis, bcIMC, CDPQ, PSP, AIM & OPT– Temasek, GIC, Lion– Prudential, Henderson, HSBC– ABP, PGGM– Macquarie,Goldman, Morgan Stanley, JP Morgan, AIG, Carlyle (the latest entrants)
• Over the last ten years, emergence of contractors/operators with ability to write large equity checks– SNC-Lavalin, Balfour, John Laing, Bilfinger, Hochtief, Ferrovial– Autostrade, Brisa, Transurban, Cintra, Abertis– BAA, Hochtief, MAP, Hastings, Morrison– CKI, United, SP, CKI
Infrastructure investment is now a global businessInfrastructure investment is now a global business
Source: Peter Salisbury, Chair, The Quantum Leap Company Limited
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8.70%
13.60%
0%2%4%6%8%
10%12%14%16%
S&P ASX 200 Accumulation Index Australian Unlisted Infrastructure Funds
Initial Infrastructure Returns Have Been High
• Funds Covered:– Development Australia Fund– Infrastructure Equity Fund (AMP) – Utilities Trust of Australia (Hastings)
Returns over 1996 - 2003 Returns over 1996 - 2003
Source: Mercers-
100
200
300
400
500
600
700
800
900
1,000
May-90 May-92 May-94 May-96 May-98 May-00 May-02
FTSE100 UK Infrastructure Index
EUR Infrastructure Index AUS Infrastructure Index
Returns of Infrastructure CompaniesReturns of Infrastructure Companies
• Returns on listed companies with infrastructure exposure
• Companies with a material exposure to infrastructure have demonstrated consistent, excess returns over the broader market since their emergence in the 1990s
• The experience in the listed market has been repeated in the unlisted markets by private funds, e.g., UK PFI funds established in the late 1990s
Source: Peter Salisbury, Chair, The Quantum Leap Company Limited
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First Mover AdvantageFirst Mover Advantage
First Mover Advantage
Source: Leo de Bever (EVP) Manulife Financial (formerly of Ontario Teachers’ Pension Plan Board)
15%
10%
6%
1999 2002 ?
Real Return
Information Arbitrage
Once the dust settles it should have a 6%
real return
15%
10%
6%
1999 2002 ?
Real Return
Information Arbitrage
Once the dust settles it should have a 6%
real return
Source: Peter Salisbury, Chair, The Quantum Leap Company Limited
Source: Peter Salisbury, Chair, The Quantum Leap Company Limited
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Major Infrastructure Fund ManagersMajor Infrastructure Fund Managers
Funds Under Management
A$b
Note: This graph does not include emerging market infrastructure find managers such as EMP or major US energy infrastructure private equity fund managers
• 75% of the market are Australian based managers!
• Macquarie’s first fund in 1996 of A$300 million
• 75% of the market are Australian based managers!
• Macquarie’s first fund in 1996 of A$300 million
Source: Peter Salisbury, Chair, The Quantum Leap Company Limited
26
73.6 2.6 2.3 1.8 1.8 1.7
0
5
10
15
20
25
30
Macquarie GoldmanSachs
Babcock &Brown
AMP Hastings RREEF Barclays AIG/Highstar
C$b
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Infrastructure Going Mainstream - Many New Funds … But MASSIVE NEEDS
Fund Target Size (m)Firm
ABN AMRO Infrastructure Fund ABN AMRO EUR 1,000Babcock & Brown Infrastructure Babcock & Brown TBCAlinda Capital Partners I Alinda Capital Partners US $1,000AMP Infrastructure Fund AMP Capital Partners GBP 400Carlyle Infrastructure Fund The Carlyle Group US $1,000Clessidra Infrastructure Fund Clessidra Capital Partners EUR 1,000Commonwealth Bank Fund/Colonial Commonwealth Bank/Colonial First State TBCDeutsche Bank Infrastructure Fund Deutsche Bank AM EUR 2,000First Reserve Fund First Reserve US $2,500 Goldman Sachs Infrastructure Fund Goldman Sachs US $5,000Guggenheim Infrastructure Fund Guggenheim Investment Management US $1,000Gulf One Infrastructure Fund Gulf One US $10,000Henderson Infrastructure Fund Henderson Private Capital EUR 485JP Morgan Infrastructure Group JP Morgan Asset Management US $1,000Merrill Lynch TBC TBCSTAR Capital II STAR Capital Partners EUR 600
Source: Peter Salisbury, Chair, The Quantum Leap Company Limited
Approx: Cdn$35.0bn
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45
26
73.6 2.6 2.3 1.8 1.8 1.7
05
101520253035404550
CanadianPensionFunds
Macquarie GoldmanSachs
Babcock &Brown
AMP Hastings RREEF Barclays AIG/Highstar
The Biggest Indicator of Change - Where is the Power?
40Staff
500Staff
InfrastructureAllocationC$
Source: Peter Salisbury, Chair, The Quantum Leap Company Limited
Page 10
And in a Parallel Universe ……the Environment …
Infrastructure Consumes Vast
Amounts ofFuels & Primary
Materials
Infrastructure Now Stands To Be A Leading Catalyst
For Advancing Technological Change
19th Century> Massive private investment in railways, tollroads, transport and utilities around the world
Carbon Dioxide Methane Nitrous Oxide
Parts Per Million – C02
Source: Martin Whittaker, Mission Point Cpaital
Source: Martin Whittaker, Mission Point Cpaital
Page 11
Fund Estimated Target Size (€ million) World Bank Funds Prototype Carbon Fund (PCF) 150 Dutch JI and CDM Funds 222 Community Development Carbon Fund 77 BioCarbon Fund 77 Multilateral Carbon Credit Fund 100 Italian Carbon Fund 77 Spanish Carbon Fund 200 Danish Carbon Fund 27 Government Funds Austrian JI/CDM Tender Unknown Belgium Federal JI/CDM Tender 9 Canada PERRL 12 Danish Carbon Tender Unknown Ecosecurities Standard Bank Unknown Finnish JI/CDM Pilot Tender 20 German KfW 80 Rabobank/Dutch Gov't CDM Facility Unknown Swiss Climate Cent 100 Japan Carbon Fund Unknown Private Funds Natsource GG CAP 700 European Carbon Fund 105 Trading Emissions 500 Japan Carbon Finance 110 ICECAP 250 Merzbach Fund Unknown Climate Change Capital 800
Total 3,616
Climate Change Going Mainstream, As WellWith Many New Funds …
Although newer and smaller in size, the
asset class of Climate Change
Funds, continue to grow and collectively promote change as
real returns are discovered
Very different asset class to
Infrastructure, though
Approx: Cdn$5.0bn
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Where the Environment / Climate Change Meets Infrastructure …
As public opinion continues to evolve, an ever increasing % of
the capital offered up to advance infrastructure projects, whether
driven by legislation (through the electorate) or trustees (through their plan sponsors) will impose
conditions requiring “sustainable” investment
parameters.
Page 13
Framework for Financial Instruments
Two Primary Drivers: the second “ … and FEAR”
Enjoy the morning … !
Bill [email protected]
BUILDING VALUE IN ENERGY & EFFICIENCY
