The prospects of a major investment package into US infrastructure is raising the interest of Asian asset owners, with Korea's Public Officials Benefit Association (Poba) and the Hong Kong unit of China's Ping An Insurance among those signalling their potential to increase investments into infrastructure investments in the country.
US president Joe Biden has made it clear that his next policy priority, following a newly passed $1.9 trillion Covid-relief package, is to deliver a $2 trillion bill to develop a sustainable domestic infrastructure that incorporates clean energy along with road and rail building. If this plan succeeds it could well require private capital financing, which offers the potential for debt financing in particular – although Republican politicians are signalling their opposition to another bill that adds a large amount to the US's debt burden.
Korea's Poba is one asset owner interested in the possibilities of the Biden infrastructure plan. Jang Dong-hun, chief investment officer, said Biden’s plan complements the W14.3 trillion ($12.28 billion) pension fund's focus on North America and Europe when making infrastructure investments.
“During the Trump administration, there was a lot of talk about the US infrastructure plan, but not much happened. The Biden plan is stronger, I think, and more likely to proceed through the Senate and the House," he told AsianInvestor.
“The administration’s focus on infrastructure will definitely provide a boost and, as everyone knows, US infrastructure has fallen far behind many other developed and developing nations.”
The CIO said his investment team plans to gradually increase the proportion of infrastructure debt in its portfolio from around 20% currently to a target of 30% over the next few years, and will allocate part of it to US infrastructure debt.
“We have focused very much on social infrastructure and things not related to GDP growth, because we do not like the exposure to cyclical economic swings embedded in infrastructure assets,” said Jang. "Infrastructure performance had been really divergent across each sector last year, so we would like to be more defensive by investing further in infrastructure debt.”
He added that "we would also like to increase our exposure to the renewable energy sector."
BIDEN'S SUSTAINABILITY PLAN
Ping An is another asset owner closely monitoring the budding infrastructure investment plans in the US, particularly in the sustainability sector.
Dennis Chan, head of infrastructure with Ping An Insurance in Hong Kong, told AsianInvestor that under Biden’s economic plan, “we believe momentum in the renewables market is set to accelerate" under Biden's economic plan.
On top of the $2 trillion infrastructure pledge, Biden has proposed a Clean Energy Plan that will see US commit another $2 trillion to an accelerated clean energy investment development goal. This plan calls for a net-zero carbon emissions standard by 2050 and a 2035 target date for a carbon emissions-free utility sector.
Chan added that Ping An "would likely increase our allocation to US infrastructure and possibly take advantage of Biden's clean energy plan if the right opportunity arises." He didn’t provide details.
The focus on infrastructure investment has been underlined by the impact of the Covid-19 pandemic. Chan said the key attractions of the infrastructure asset class – resilience, duration, income and barriers to entry – have been reinforced as a result of the pandemic.
Infrastructure debt and private debt strategies have been popular with Asian asset owners, particularly insurers, and Chan said this is likely to become an even greater part of investors’ portfolios.
"With over $200 billion annual issuance of global infrastructure debt in the past decade 10 to 20 years, we believe infrastructure debt issuance need will remain very strong," he noted, adding that further increasing demand for infrastructure and interest in renewable energy is "expected to keep spurring demand for infrastructure debt".
However, not all investment experts are convinced about US infrastructure opportunities. Sustainability consultant Gordon Noble, partner at the Melbourne-based Blended Capital Group, said that even if Biden’s infrastructure plan is passed by both Senate and the House investment opportunities may not emerge any time soon.
"It is unlikely that, at least in the next four years, we will see US infrastructure assets coming to market, which is what unlisted infrastructure investors are predominantly looking for," Noble told AsianInvestor.
He added that many US assets, such as ports, airports and water utilities, that are owned by municipal corporations “which the Biden Administration won’t have control over. What they can do is to seek to influence the behaviour of infrastructure assets by linking expenditure to a stewardship framework".
There is also the need for greater clarity on the government's exact infrastructure spending goals.
“At the moment, from what we can see, the Biden administration hasn’t settled on how it would spend the money," said Noble. "It would be sensible not to spend the money in a single administration. This would lead to a rush to get projects out the door and the potential for skills shortages in particular engineering professions. Australia’s experience during the mining boom is testament to the problems this causes.”
He believes it would also be wise for the US government to establish a focused investment vehicle to coordinate the spending:
“Models such as Australia’s Clean Energy Finance Corporation demonstrate how government spending can be used to stimulate private investment," he said. "There is potential to leverage Biden’s Administrations spending this way.”