Monday, February 06, 2006

"The Latest investment Fad."

JPMorgan Launches Infrastructure Group

February 6, 2006

Institutional Investor
Copyright 2006

JPMorgan is throwing its hat into the ring of the latest investment fad with its creation of the Infrastructure Investments group. The asset manager is not currently in the market with a fund or product, but said it would consider investments in a variety of infrastructure projects including pipelines, water treatment systems, and bridges and tunnels and toll roads.

Mark Weisdorf, global chief investment officer, declined to offer specifics on when the group might launch a fund, saying only: "In the not too distant future the firm will be doing something in this space."

Australia's Macquarie Bank is the biggest player in the space several funds. Goldman Sachs is rumored to be raising a fund.

Pensions, foundations and endowments in Australia, Canada, Europe and the U.K. have been large investors in infrastructure for the last decade, allocating as much as 15% of their portfolios to a unique infrastructure asset class, Weisdorf said. While U.S. institutions are not there yet, the CIO, who is from Toronto, said the response has been "fantastic." The appeal? Infrastructure tends to be predictable, long-life assets with steady cash flows and a low correlation to traditional asset classes, like equities and fixed income.

"They truly diversify a portfolio and are very attractive," said Weisberg, who was previously v.p. of private market investments for the Canada Pension Plan Investment Board. There he was responsible for the CA$91.7 billion (US$84.7 billion) plan's investment in real estate, private equity and infrastructure.

In Australia, for instance, infrastructure funds are the largest growing sector of the institutional superannuation market, according to a November study by Mercer Investment Consulting. Toll roads and airports offer the best returns with the least amount of risk compared to telecommunications and railways, the study found. Concerns to potential investors might be the long-term lock-up periods and high fees, which tend to include incentive fees as well as management fees.

Early players in this space have tended to organize investments similar to private equity funds. The JPMorgan group will be built alongside the global real estate group because of shared risk and return characteristics, such as large cash returns, long-term strategies and build-in adjustments for inflation, Weisdorf said.

Weisberg suspects that the first U.S. institutions will enter the space gradually, allocating funds from other parts of a portfolio. Overtime, he predicts U.S. pensions will follow in the footsteps of Australia and Canada by creating an asset class specific to "infrastructure that could be as large as the allocations to real estate."

© 2006 Institutional Investor