DMITRIEV: THE $10 MAN LURING CAPITAL TO …...DMITRIEV: THE $10BN MAN LURING CAPITAL TO RUSSIA...

DMITRIEV: THE $10BN MAN LURING CAPITAL TO RUSSIA

FUNDRAISING The great debt model shoot-out

ASSET MANAGEMENT Preparing for all eventualities

MEXICO The Latin American hotspot

US TRANSPORT Road P3s move up a gear

EUROPEAN ENERGY The shift to CHP

BERLIN SUMMIT 2013 All the key talking points

We can help to educate people about the reality

ISSUE 41 | APRIL 2013 | infrastructureinvestor.com

FOR THE WORLD’S INFRASTRUCTURE MARKETS

PEI INVESTOR RELATIONS& COMMUNICATIONSFORUMJune 13-14 | Setai Fifth Avenue, New York

Position your firm for success on the fundraising trail while meeting changingregulatory and investor expectations

Private Equity International returns with the eighth annual Investor Relations &Communications Forum to help you address the challenges facing private equity investorrelations, marketing and communications professionals.

As private equity comes under increasing scrutiny, you will gain the insights and strategies toraise funds in this exceedingly tough climate and subsequently keep your investors happy.

Confirmed speakers include:

Christina G. Anzel, Vice President - InvestorRelations & Marketing,Energy Investors Funds

Charles W. Bauer,Managing Director,EnCap InvestmentsL.P.

Yokasta Segura-Baez,Principal, Pantheon

Visit www.privateequityinternational.com/irny13 for more information

QUOTE IRSUB13 TO CLAIM YOUR SUBSCRIBER DISCOUNT

SUBSCRIBER OFFER – SAVE 15%

Onlinewww.privateequityinternational.com/irny13

[email protected]

Phone+1 212 645 1919 ext.115

The premier peer-to-peer event for IR & communications

professionals

11997 IRNY13 Advert_Layout 1 12/03/2013 18:07 Page 1

1a p r i l 2013 i n f r a s t r u c t u r e i n v e s t o r

There are optimists and pessimists when it comes to assessing the prospects of the infrastructure asset class. The optimists would have found it reassuring to be in the presence of 500 delegates at Infrastructure Investor’s Berlin Summit 2013 in early March (see p.12). Here, there was talk of infrastructure becoming a “major asset class” and those present were reminded of the rapidly increasing allocation targets being set by certain types of investor – most notably Canadian pensions, although investor appetite is becoming more and more diverse.

The pessimists, however, would point to the lack of deal flow. As we went to press, the UK Chancellor was preparing to reveal progress made on the country’s bold National Infrastructure Plan. Government sources were hinting that progress to date would surprise the sceptics. Nonetheless, there are real concerns that, in the UK and elsewhere, the desire to invest capital is notably greater than the current ability of infrastructure assets to absorb that capital. This is leading to the kind of “mini-bubble” being seen in core infrastructure, where fierce competition appears to be driving down returns (see p.10).

In Berlin, Global Infrastructure Partners chairman and managing partner Adebayo Ogunlesi reminded us that careful steward-ship of assets is one way to preserve returns. In this issue, we record the considered views of three infrastructure fund management professionals who we gathered together in London for a roundtable discussion on the subject of asset management (see p.20).

This serves as a reminder of how granular the asset management function is. Surely the view of infrastructure as a bond-like investment can be consigned to the past: such an assessment simply doesn’t do jus-tice to the range of operational strategies deployed by those on the frontline.

In terms of how to channel capital efficiently into the asset class, our keynote interview with Kirill Dmitriev of the Rus-sian Direct Investment Fund (RDIF) will be of great interest. Dmitriev has been doing his homework on the subject as chairman of the Business 20’s (B20) investment and infrastructure taskforce. And he has real credibility on that subject, having helped RDIF – a $10 billion fund established by the Russian government – to channel almost $2 billion of capital into Russian companies since 2011.

This issue also includes our cover story on fundraising (see p.14) in which we exam-ine the different kinds of infrastructure debt solutions currently in the market; as well as a country report on Mexico (p.33) and a sector report looking at the latest develop-ments in US transportation (p.36).

Best wishes and enjoy the issue!

Andy Thomson Senior Editor

Editorial Director: Philip Borel+44 20 7566 [email protected]

Senior Editor: Andy Thomson+44 20 7566 [email protected]

Associate Editor: Bruno Alves +44 20 7566 [email protected]

Senior Reporter:Chris Glynn +1 646 545 [email protected]

Contributor: John McKenna

Advertising Manager:Ram Kumar+44 20 7566 [email protected]

Head of Production:Tian Mullarkey+44 20 7566 [email protected]

Subscriptions & Reprints:Fran [email protected]+44 20 7566 5444+1 212 645 1919 [Americas]+852 2153 3140 [Asia]

Publishing Director:Paul McLean+44 20 7566 [email protected]

Group Managing Director:Tim McLoughlin+44 20 7566 [email protected]

Co-founders:Richard O’DonohoeDavid Hawkins

Published by PEI Ltd.www.InfrastructureInvestor.com

e: [email protected]

andy thomsonEditor's lEttEr

500 reasons for optimism

2 i n f r a s t r u c t u r e i n v e s t o r a p r i l 2013

20 28 33

Editor’s ChoiCE 4 Train kept-a-rollin’ 5 The cover jinx5 Room for improvement

NEws aNalysis 6 Groundwork: Coming of age 7 Fixed income: Veterans launch infra bond fund 8 Western Front: A sense of deja vu 9 People: OTPP’s Dowd in surprise exit 9 airports: Heavyweights eye Midway Airport 10 Underpinnings: Bubble trouble 11 UK budget: Mixed response to UK budget 11 Poll watch: Spain out of favour 12 Berlin summit 2013: Time to get engaged

FEaturEs14. COveR sTORy FunDRAisinG The debt settlersBruno Alves talks to three fund managers treading the wide-open plains of infrastructure debt fundraising

18 COveR sTORyFunDRAisinG

‘There are different ways to skin the cat’ Chris Glynn talks to Probitas’ Kelly DePonte about that perennial up-and-comer, the managed account

20 AsseT MAnAGeMenT ROunDTABLe In it for the long term Andy Thomson met with three industry professionals to discuss how operational nous can make a big difference

28 KeynOTe inTeRview KiRiLL DMiTRiev, RussiAn DiReCT invesTMenT FunD From Russia with money RDIF is a $10 billion fund that has formed three key partnerships and channeled almost $2 billion into Russian companies. We find out more about its plans

33 COunTRy RePORT MexiCO LatAm’s next great infra play Obliging legislation and deal flow are making Mexico a magnet for Latin American infrastructure investment

36 seCTOR RePORT us TRAnsPORT Quick off the mark The US market has started 2013 with a bang, but this may not herald a long-awaited boom

38 GuesT FeATuRe Why CHP may be the future of European energy Where can investors find opportunity today? Jim Campion of EnerCap Capital Partners provides a possible answer

contEnts

inFrastrUctUrE invEstor | aPril 2013

data 41. Investor Profile: Catholic Superannuation Fund 42 Funds in Market

Order your copy today:

Onlinewww.peimedia.com/infradirectory12

Phone+44 (0)20 7566 5444

[email protected]

This latest edition compiles all the essentialinformation about potential investors, listedand unlisted, in one convenient fundraisingguide.

• Full profiles of over 1100 investors in infrastructurefrom all over the world

• Contact details of up to six relevant decision-makers

• Infrastructure portfolio breakdown in terms ofgeography, sectors and investment opportunities

• Latest commitments to infrastructure funds

Fourth Edition

An essential fundraising resource to help youidentify and segment potential investors foryour current or next fund

Brand newupdated edition

THE GLOBALINFRASTRUCTUREINVESTORSDIRECTORY

Special subscriber offer, save 20%Quote infrad2012 to claim your discount

11370 Infra Directory Ad 2_Layout 1 22/11/2012 15:10 Page 1


editor’s choice

“By investing in the arteries we will get growth flowing to every part of the country.” UK Chancellor George osborne announcing in the UK government’s 2013 Budget an extra £3 billion for infrastructure from 2015-16

“There needs to be a real push to turn this great rhetoric into reality by undertaking well-structured procurements that result in contracts being signed in a timely fashion so that one can start to see tangible deliverables and new jobs created.”colin Walsh, partner in the finance & projects group at law firm DLA Piper, commenting on the above announcement

“We waste hours sitting in traffic; power outages become more frequent; we lose billions of gallons of water through leaky pipes. These things are costing us money and we’re getting nothing for it.”Gregory diloreto, president of the American Society of Civil Engineers, on the “D+” rating recently awarded to US infrastructure by his organisation (a small improvement on the “D” grade it awarded previously)

“The focus on reengineering Western Sydney is important, given its importance in terms of economic and population growth.”Brendan lyon, chief executive of Infrastructure Partnerships Australia, welcomes a draft report on the future of infrastructure in New South Wales seeking to address the impact of a growing and ageing population

“London Bridge is falling down/Zombie tourists flock into town/Japanese banker taking digital pix/A drunk’s mad laugh looking for a fix.”

Well, Bob Dylan it isn’t. But still, how many government ministers do you know that moonlight as lead singers in rock ’n’ roll bands that actually get to release a single?

In case you’re wondering, the above lyrics come from Piccadilly Circus, the debut single from The Reform Club, a band fronted by none other than UK Junior Transport Minister Norman Baker, a Lib-eral Democrat (you didn’t actually think a Conservative would front a rock ’n’ roll band, did you?).

Unfortunately, the notoriously tough British media didn’t take kindly to the junior minister’s pop efforts, with The Telegraph calling it “banal, obvious and

utterly pedestrian [...] a log jam of medio-cre rubbish”. Ouch!

Now, we’re pretty much tone deaf at Infrastructure Investor anyway, but we are concerned about Piccadilly Circus because another UK newspaper – the Guardian – released an investigation reporting that fewer than one in four of the government’s hundreds of national infrastructure projects in the road, rail and energy sectors will get completed by the end of the current leg-islature.

According to the newspaper, only three major road projects have begun construc-tion in this legislature and national policy statements on spending for roads, rail and aviation are all overdue.

Now we are all for extra-curricular activi-ties, but as our parents used to say: “You have to finish your homework first.” n

UK Junior Transport Minister Norman Baker may end up being the country’s first rock ‘n’ roll minister

Train kept a-rollin’

Baker: rock ’n’ roll Minister


“ASCE’s New Report Card bumps the nation’s infrastructure grade”. This was the headline of a long-awaited press release from the American Society of Civil Engi-neers, which every four years (hence ‘long awaited’) delivers a grading on the current state of US infrastructure. It was the first time that the organisation had given an improved grading since it issued its debut Report Card in 1998.

So presumably champagne corks were popping from East Coast to West as the US’ much-maligned infrastructure demon-strated to a respected industry body that it had finally raised its game? Well....no. The thing is, technically the grading improved.

But when you move up from a “D” to a “D+”, as US infrastructure has done, it’s hard to get too excited.

And, even if anyone was tempted to get excited, a press release from ASCE included a sober assessment of future prospects. It stated that, while $3.6 tril-lion needs to be spent on US infrastruc-ture by 2020, only $2 trillion is projected to be spent - leaving a hefty $1.6 trillion shortfall. Now, we don’t want to sound like glass-half-empty types here at Infra-structure Investor and we’re pleased that progress has been made. But it doesn’t look to us as if an “A” is likely anytime soon. n

US infrastructure: still bottom of the class

editor’s choice

Luis Fortuno was long overdue to appear on the cover of Infra-structure Investor.

Fortuno, elected Governor of Puerto Rico in 2009, was respon-sible for helping transform the Caribbean island and US terri-tory into a booming public-private partnership (PPP or P3) market. In the fall of 2012, in the run-up to the general election, we wrote a 2,000-word feature article on Fortuno based on a face-to-face interview. That November, on the eve of his bid for re-election, Governor Fortuno graced the cover of ‘Issue 37’. He was removed from office a week later, losing to Alejandro Garcia Padilla by a margin of less than 1 percent.

Truth be told, we shrugged it off. Fortuno was a publicly elected official so always subject to the stark verdict of the ballot box. ‘Issue 39’ was when sat up and took notice. We’d interviewed Stephen Dowd,

senior vice president for Ontario Teachers’ Pension Plan (OTPP) for a 2,000-word piece on Teach-ers’ direct investment programme and C$8.7 billion infrastructure portfolio. The next time we heard the name ‘Stephen Dowd,’ it was followed by the phrase, “…is no longer with Ontario Teachers’…” and that was less than a month after he had appeared on the cover of the February issue.

The last thing we want to do as professional journalists is come across as alarmist, nor do we want appearing on the cover of Infra-structure Investor to be seen as a guaranteed career-changer. As a footnote, both the Fortuno profile and Dowd article were written by senior reporter Chris Glynn. We are hoping we don’t have to ask Chris to stand down from his keynote interview duties in order to reassure the market. n

The cover jinx

Room for improvement

FORTUNO ON PUERTO RICO’S EMBRACE OF THE P3

UK PRIVATE FINANCE INITIATIVE What comes next, and what are its prospects?

LATIN AMERICA Buoyed by the commodities boom

THE RULES OF THE CLUB Investing the Access Capital Advisers way

MIDDLE EAST Education and healthcare centre stage

INFRASTRUCTURE DEBT Move over, fixed income

US ELECTION A low profile can be a good thing

ISSUE 37 | NOVEMBER 2012 | infrastructureinvestor.com

FOR THE WORLD’S INFRASTRUCTURE MARKETS

We want to be a trailblazer, and we are a trailblazer

OTPP’s DOWD ON THE DEMANDs OF PUBLIC sERVICE

FUND MODELLING How do I get paid and when?

FRANCE REPORT Why PPPs are running out of steam

CANADA ROUNDTABLE Secrets of success in Toronto

UK POLICY Labour MP John Healey’s verdict

LIFE IN THE MID-MARKETOFI InfraVia duo talk strategy

PLUs: Australia Report 2013

IssUE 39 | FEBRUARY 2013 | infrastructureinvestor.com

FOR THE WORLD’s INFRAsTRUCTURE MARKETs

This is more challenging than working in a purely private sector job

It’s unofficially the fastest-growing urban legend in the asset class

US infrastructure is improving! But not by very much

xxxxxxxxxx


News aNalysis

monthly commEntary From InfraStrUctUre InveStor sEnior Editor andy thomson

g r o u n d w o r k

There are still some causes for concern, but the infrastructure asset class is growing up fast

Coming of age

Pessimists were in short supply at the 500-strong gathering of industry practitioners at our Berlin Summit 2013. And that’s no surprise. After all, some were talking of Canadian pensions increasing their allocations from mid-20 percent to mid-30 percent in the near future. Ok, it’s rec-ognised that Canadians such as BCIMC and La Caisse are some-what ahead of the game – but there was excited talk of inves-tors in the US and Asia, as well as sovereign wealth funds around the world, playing a determined game of catch-up.

Delegates were reminded of the main reason why. With inter-est rates at such low levels, there is a natural migration from fixed income as investors seek better yield and returns. In the past, the natural migration point may have been equities, but equities are displaying a degree of volatility that has a tendency to unnerve investors. Indeed, those with an already-high equities exposure are also tempted by infrastruc-ture as a way of de-risking their portfolios.

vindicatEd OK, infrastructure allocations have a way to go yet to prove the rather neat theory of portfolio adjustment. But Mark Weisdorf

of JP Morgan Asset Management, one of our panellists in Berlin, should have felt vindicated by all the talk of infrastructure’s coming of age. Arguably no-one, after all, has made bolder claims about its potential than Weisdorf over the years. When one of his fellow panellists spoke of “the beginnings of a major asset class”, the canny Weisdorf was probably smiling and nodding in agree-ment (though it was hard to tell from near the back of the room).

Now, in saying that pessimism was in short supply, that’s not to say the room was full of the easily impressionable (far from it). Along with the optimism, there was realism. It’s acknowledged that there are issues with the pric-ing of core infrastructure, as elab-orated by my colleague Bruno Alves on p.10. Equally, the point was well made that some institu-tional investors in infrastructure have return benchmarks around the 5 percent mark – in other words, they have something of an in-built buffer for pricing pressure.

There are fears that height-ened competition will push some fund managers out of their com-fort zones and into riskier areas of investment. Questions persist about the availability of debt finance, despite the exceptionally

well attended debt session on day two of the Berlin event and the presence of blue-chip organisa-tions new to the space. And then there’s the thorny issue of politi-cal risk – much discussed and fretted over.

Furthermore, there was talk of an imbalance between demand for infrastructure and the scar-city of assets to invest into (“all these people and no deals!” as one industry professional wryly observed between conference ses-sions). There again, others point to substantial corporate divest-ment programmes, especially by large utilities such as E.ON. Still more reference privatisation possibilities in previously much-maligned Southern Europe (less maligned since Northern Europe started experiencing some of the same problems).

In any case, even should you be in the pessimist camp with the belief that there is a shortage of assets, it’s hard to beat the opti-mists at the moment. As a breezy individual in Berlin remarked:

“Once the capital is there and it’s certain, the deals will flow.” It was an expression of faith that cap-tured the prevailing mood rather nicely. n

“There was excited talk of investors in the US and Asia, as well as sovereign wealth funds around the world, playing a determined game of catch-up” e: [email protected]


If more proof were needed that the fixed income industry is seriously sizing up the infrastructure debt space, Western Asset Management’s recent announcement that it is launching a UK-domiciled infrastructure debt fund should help dispel any linger-ing doubts.

Western Asset Management, with some $462 billion under management globally, is Legg Mason’s fixed income subsidiary. It is launching a £1 billion (€1.2 billion; $1.5 billion) UK-domi-ciled infrastructure debt fund target-ing publicly-traded infrastructure debt securities across different industry sub-sectors and domiciles.

“The fund could have a capacity of up to £1 billion,” a spokesman told Private Debt Investor, Infrastructure Inves-tor’s new sister publication on private debt. “Western would be pleased if it raised between £100m and £300m in the first 12 to 18 months,” he added.

“The rising demand for infrastruc-ture spending and reduced bank and government financing will see more debt issued in the public markets,” Mike Zelouf, head of Europe, Middle East and Africa at Western explained. “The fund can be complementary to such private investment channels, as it offers greater liquidity and transparency.”

Western said it would be placing greater emphasis on bonds of infra-structure businesses that have a lead-ing position in their sector, generate

attractive and reliable cash-flows and benefit from the pricing power their dominant position affords them.

Only a quarter of the fund will be invested in ‘non-core’ securities, issued by businesses that engage in infrastructure activities and debt issued by infrastructure providers in Asia, Australia and the Americas, the fund manager said. The rest of the total assets will invest in ‘core’ infra-structure debt securities that are pre-dominantly issued by European busi-nesses. n

News aNalysis

Legg Mason’s Western Asset Management targets £1bn for publicly traded infrastructure bonds. Magda Ali reports

Veterans launch infra bond fund FixEd iNComE

corrEction

In our Annual Review, which accompanied the March 2013 issue of Infrastructure Inves-tor, we incorrectly stated that Macquarie’s Philippine Invest-ment Alliance for Infrastructure (PINAI) fund had raised €625 million. The correct figure was in fact US$625 million. We are happy to set the record straight.

GBP Utilities¹ GBP Broad market ²

European infrastructure³

Annualised Volatility 7.07% 5.55% 4.82%

Annualised Return 6.74% 6.03% 6.55%

Return/Volatility 0.95 1.09 1.36

historiCal rEturNs oF BarClays EuropEaN iNFrastruCturE iNdEx, 31 JaN 07 - 30 apr 12

EuropEaN aNd GBp iNFrastruCturE

European infrastructure GBP infrastructure

Number of Issuers 85 61

Duration (years) 7.8 10.2

Yield-to-Worst (%) 3.4 4.0

Source: Barclays European Infrastructure Index, Western Asset Management. As of 30 Apr 12

Source: Barclays European Infrastructure Index, Western Asset Management. As of 30 Apr 12

¹ BofA Merrill Lynch Sterling Utility Index (UU00) ² BofA Merrill Lynch Sterling Broad Market Index (UK00) ³ GBP-hedged


News aNalysis

On paper, the recent deal to pri-vatise parking in Cincinnati was a winner.

Last autumn, the ‘Queen City,’ the

third-largest municipality in the US

Midwest state of Ohio, put a package

of garage, on-street and metered park-

ing out to bid, publishing a request for

proposal (RFP) asking for a minimum

of $40 million upfront. What came

back was enviable: a private consor-

tium teamed with the Port of Greater

Cincinnati Development Authority

was offering $92 million upfront in

a long-term contract with a total eco-

nomic value topping $100 million.

But the essential problem – that

the real world doesn’t exist on paper

– made what happened next predict-

able, especially given what had hap-

pened with parking privatisation in

Los Angeles and Pittsburgh. Even

though the city council approved

the lease in a March 7 meeting, the

deal was halted when a judge issued a

restraining order after a public group

filed a lawsuit against Cincinnati.

With the deal in limbo, media

outrage is mounting and political

cunning manifest. John Cranley, a

mayoral challenger to incumbent

Mark Mallory, panned the public-pri-

vate partnership (PPP; P3) as a “100

percent hidden tax increase,” while

a report has surfaced charging that

the would-be private partner would

earn double current parking revenue.

For privatised parking, the sig-

nificance of Cincinnati is twofold:

raising the spectre of the 2008 Chi-

cago parking P3 that cast a pall over

the $452 million Pittsburgh lease and

2011 Los Angeles parking deal; while

reinforcing the appeal of privatised

campus parking, as seen in last year’s

$483 million Ohio State University

(OSU) deal.

Cincinnati parking is a solid

asset. A 15,000-space package spread

among on-street and garage parking,

the deal also included Sycamore

Garage, a 725-space structure.

The RFP garnered interest from

nine consortia featuring the likes of

Morgan Stanley Infrastructure (MSI)

and Vinci Concessions. The Port of

Greater Cincinnati Development

Authority also responded. Though

the Authority was not selected, win-

ning bidder ParkCincy partnered

with the public office.

The $92 million upfront sum

offered would come from a Port of

Greater Cincinnati Development

Authority bond offering, and include

a $3 million annual installment, $20

million in capital improvement to

the meter system and Sycamore

Garage, and $98 million in capital

investment over the course of the

lease – a 30-year term for on-street

parking and a 50-year term for off-

street.

Aside from the Authority, consor-

tium ParkCincy includes underwriter

Guggenheim Partners, asset manager

AEW Capital Management, with

Xerox managing on-street parking

monthly commEntary From InfraStrUctUre InveStor sEnior rEPortEr chris Glynn

w e s t e r n f r o n t Cincinnati is both a reminder of parking’s troubled legacy in the US as well as a nod to the allure of doing business on campus

A sense of déjà vu

and Denison managing off-street

parking.

ParkCincy has estimated that,

in 2014, meter and ticket revenues

are expected to increase from $7.3

million to $10 million. By 2016, that

revenue doubles to $14.3 million. The

projected increase in revenue is, of

course, due to private sector efficiency,

but also to stringent enforcement.

For his part, City Hall hopeful

Cranley has alleged that Wall Street,

not the Authority, will be in control

of the partnership. The lawsuit, mean-

while, said the lease should be subject

to a referendum.

BacKlash The ongoing backlash against leased municipal parking (New York has also shelved a decision to privatise parking out of fear of nega-tive publicity) is further proof that on-campus parking is, for the asset class, a more viable proposition.

Ohio State was allowed to unilat-

erally approve a deal with Queensland

Investment Corporation. Indiana Uni-

versity is pursuing a lease, while the

University of Michigan and University

of Texas are examining privatisation.

While auctioning off-street park-

ing might make sense for a munici-

pality, the current Cincinnati deal is

illustrative that navigating procure-

ment processes can still be highly

problematic for the asset class. n

“With the deal in limbo, media outrage is mounting and political cunning manifest” e: [email protected]


News aNalysis

“You can balance public service and an interesting place to be. This is more challenging than working in a purely private sector job,” enthused Stephen Dowd, senior vice president, infrastruc-ture, for the Ontario Teachers’ Pension Plan (OTPP), in a February interview with Infrastructure Investor.

By March 11, either Dowd or OTPP decided the above did not apply any-more – at least to Dowd’s role in OTPP

– with Dowd stepping down. A spokes-woman for the pension confirmed OTPP and Dowd had parted ways, but declined to detail what prompted Dowd and Teachers’ to part.

He will now be replaced by Jane Rowe, senior vice president, private

capital, for the C$117 billion (€88 billion; $118 billion) pension plan. According to the spokeswoman, the Plan is still weighing up whether to replace Dowd, who had been with the Toronto-headquartered pension fund administrator in 2008.

Prior to joining OTPP, Dowd worked for Enron Corporation, remaining with the publicly traded company through its highly publicised bankruptcy.

Teachers’ is a pioneering direct investor in infrastructure, taking own-ership and operation of Birmingham Airport in the UK, for example. It manages a C$8.7 billion infrastructure portfolio n

In what reads like a veritable who’s who, the infrastructure industry responded in force to a February request for qualifica-tions for a private sector partner to oper-ate the Chicago Midway International Airport (Midway Airport).

The list of shortlisted respondents seems to have attracted just about every heavyweight player with an airports port-folio under its belt. It includes the likes of AMP Capital; Corporacion America Group; Global Infrastructure Partners; Hastings Funds Management; Industry Funds Management/Manchester Air-ports Group; and a Ferrovial/ Macquarie Group consortium.

Leasing Midway Airport to a private

operator would boost the US’ nascent airport public-private partnership (PPP or P3) market. Luis Munoz Marin Inter-national Airport, located in Puerto Rico, a US territory, is the lone privately run air field in the US.

Bidding on a long-term lease of Midway Airport began in January with a request for qualifications (RFQ) due Friday, February 22.

Alberta Investment Management Corporation, Allstate Investments, Bar-clays Capital, GS Infrastructure Part-ners, John Hancock Life Insurance, the Ontario Teachers’ Pension Plan, TIAA-CREF and Ullico Infrastructure Fund all expressed interest in financing the

Midway Airport P3. Private equity firm ACO Investment Group, formed in 2010, was eliminated as a bidder.

Chicago published the RFQ after receiving US Federal Aviation Adminis-tration approval. The lease offered a “less than” 40-year term, the RFQ said.

The RFQ officially re-opened a previ-ously unsuccessful attempt to privatise the air field: a prior deal to lease Midway Air-port to Citi Infrastructure Investors (CII), John Hancock Financial and Vancouver Airport Services was reached in 2008.

But the consortium was unable to finance the deal. By 2009, as the global financial crisis peaked, the P3 was can-celled. n

The head of the Canadian pension’s C$8.7bn infrastructure programme stepped down on March 11

AMP Capital, Ferrovial, GIP and IFM are all lining up to operate the Chicago airport

OTPP’s Dowd in surprise exit

Heavyweights eye Midway Airport

pEoplE

airports

Dowd: stepping down


News aNalysis

It was one of the major themes of our Berlin Summit 2013, although it didn’t quite have the headline-stealing thunder and general con-sensus gathered by the asset class’s current bête noire, political risk.

Still, throughout the corridors of Berlin’s Radisson Blu hotel you could hear the question being asked: Is infrastructure experienc-ing a new asset bubble?

Well, the first thing worth bearing in mind when trying to answer that question is that infra-structure might – depending on your returns profile – already be experiencing some bubble eco-nomics, particularly when it comes to European core infrastructure.

Global Infrastructure Partners’ (GIP) helmsman Abebayo Ogun-lesi admitted as much during the opening keynote interview, when he remarked that “prices in Europe are 50 percent higher in some cases than what we wanted to pay,” although he also argued that the “current bubble is not as bad as the 2006/2007 asset price bubble”.

You don’t have to be a genius to understand that Ogunlesi is still chewing on the difference between the €2 billion offered by GIP and Flughafen Zurich and the €3.08 billion paid by winning bidder Vinci to acquire Portugal’s airports operator, ANA.

That price was apparently a bit

too steep, in GIP’s opinion, and a similar case can be made for asset prices across other core infrastruc-ture sectors, like water. Swiss pri-vate markets firm Partners Group coined the term ‘asset price infla-tion’ to highlight how returns are getting depressed across the core infrastructure space.

The difference between inflated and bubble prices, though, may be very much in the eye of the beholder.

If you’re aiming for returns in the high teens but competing against someone who’s happy to get mid-to-high single digit returns, then you might feel yourself bid-ding in the midst of a bubble. If, on the other hand, you are perfectly content with mid-to-high single digit returns, then all this bubble talk might sound a bit odd.

Still, there are some worrying signs out there, whether or not you think a new bubble is forming or, like Ogunlesi, you already believe the bubble is here (but not as bad as it could be).

A classic sign is that there is a huge amount of money descend-ing on the asset class, which may lead to some costly misunderstand-ings.

For example, arguing that an infrastructure equity investment is in any way similar to buying a sov-ereign bond is counterproductive at best and disingenuous at worst.

monthly commEntary From inFrastrUctUrEinvEstor.com Editor BrUno alvEs

u n d e r p i n n i n g s

When does asset price inflation turn into a bubble?

Bubble trouble

That notion has partly been predicated on the back of another worrying concept, which is now thankfully being shattered: that regulated assets offered iron-clad safety and predictability, allowing investors to plunge into the asset class without much concern.

thEsE arE BUsinEssEsStill, perhaps the best expression of the desire to bring infrastruc-ture into gilt-like territory is the more or less wilful disregard for the fact that investors are buying into businesses rather than passive assets. These are businesses with employees, trade unions, govern-ment counterparties, all of which have to be managed before inves-tors cash their cheques.

Nor does infrastructure debt substantially change the above. Without active management, all but the plainest of PFI and/or availability-backed PPP debt fits the gilt-plus story. Project finance debt may have low default rates and high recovery rates when it does default, but that is because banks employ considerable resource in structuring and monitoring it.

If the current surge of inter-est in infrastructure prompts new investors to throw caution to the wind, then the asset class can really be said to be in bubble trouble. n

e: [email protected]

“The difference between inflated and bubble prices may be very much in the eye of the beholder”


News aNalysis

Business lobby group the CBI neatly encapsulated the feelings of infrastructure asset class professionals towards the UK’s 2013 Budget, which was announced just as this issue of Infrastructure Investor was going to press.

On the one hand, the announcement that an extra £3 billion (€3.5 billion; $4.5 billion) a year would be committed by the public purse to large-scale infrastructure projects was welcomed. “This was recogni-tion it was a mistake to cut capital spending so sharply and that other growth-boosting measures were taking too long,” the CBI observed in a press release.

On the other hand, the concensus view was that the government’s infra-structure-related achievements would be judged not on the amount of capital

committed but on its ability to channel the capital effectively and get projects up and running. As the CBI release also said: “The new guarantee to support the Drax power station is encouraging, but high expecta-tions for further guarantees have fallen flat. The government needs to do more to demonstrate to global investors that UK infrastructure is a prize worth pursuing.”

Nick Baveystock, director general of

industry body the Institution of Civil Engi-neers, also drew attention to a perceived failure to allow investors to access infra-structure in the way that appeared to be promised. “The drawn out process of the Electricity Market Reform, and the scaled down hopes from investment from sources such as pension funds, show there is an urgent need for government to improve its role as a facilitator of investment,” he said.

Meanwhile, Deborah Zurkow, chief investment officer of infrastructure debt at Allianz Global Investors, suggested there was “...a gap - perhaps bridgeable through education - between the type of projects the government is seeking invest-ment for (new builds) and the types of investments pension funds are looking to make (refinancing).” n

On the InfrastructureInvestor.com website, you will from now on find regular polls where we test reader opinion on the hot topics of the day. In the first of these, around 84 percent of voters said that ret-roactive tariff cuts had either put them off investing in Spain for good, or they were undecided about the matter.

As we have documented - both on the website and in these pages - a series of reg-ulatory shocks have taken the asset class by surprise with their severity. The most recent example was when investors in the Gassled pipeline in Norway saw a 90 per-cent tariff reduction on future contracts.

But recent regulatory shocks had their genesis in retroactive cuts to renew-able energy tariffs - and the first high-profile case was in Spain’s solar photo-voltaic sector, which led investors to group together to launch a legal action in search of compensation.

Our poll indicates that Spain has not been forgiven - and that it may struggle to entice fund managers back to help meet its future investment needs. Almost a third of voters (31.6 percent) said the retroactive cuts had put them off invest-ing in Spain for good. More than half (52.6 percent) said they were currently

undecided, while a mere 15.8 percent said the cuts had not put them off. n

The government’s record on infrastructure will not be judged on money alone

In a snapshot of reader opinion, it’s clear that Spain will not easily recover from punitive regulation

Mixed response to UK budget

Spain out of favour

poliCy

poll watCh

HM treasury: jury still out on its infra plans

Source: www.infrastructureinvestor.com

HAVE SPAIN’S LATEST RETROACTIVE CUTS PUT YOU OFF INVESTING IN THE

COUNTRY FOR GOOD?

Yes31.58%

No15.79%

Undecided52.63%


As measured by the number of del-egates (around 500), it was clear that something special was in the air as Infrastructure Investor’s Berlin Summit 2013 got underway in early March. By the end of a memorable event, two observations stuck in the mind.

One: if there were any doubt that

infrastructure stands on the cusp of

becoming a major asset class, such

thoughts should now be dispelled. As

panellists spoke of certain pension

funds looking to hike allocations to 35

percent of their total portfolios, there

were even whispers during session breaks

of a “mini-bubble”. We won’t dwell here

on the other widely heard observation

that the pipeline of deals is presently offering slim pickings for

the deal-hungry hordes.

Two: Political/regulatory risk is unquestionably top of the list

when it comes to things that keep infrastructure investors awake

at night. Against a backdrop of what has been described in our

pages and elsewhere as the “capricious” acts of governments and

regulators (and yes, Norway did receive

more than a few mentions), it was no

surprise to see nods of agreement when

keynote speaker and former German Vice

Chancellor Joschka Fischer referred to

politicians as “opportunistic”.

FacE rEality However, there was also a call to those present to face the reality rather than merely dwell on it. In an on-stage interview, Global Infrastructure Part-ners’ chairman and managing partner Adebayo Ogunlesi spoke of practical measures that can be taken at the asset level to aid the perception of infrastruc-ture funds as beneficial and responsi-ble owners. Improving the customer

Adverse rulings heighten the need for investors to talk to politicians and regulators. This was a key takeaway from our annual gathering of luminaries in Berlin

b e r l i n s u m m i t 2 0 1 3

News aNalysis

Gordon Bajnai: former Hungary Prime Minister chaired the event

Time to get engaged


News aNalysis

experience and the careful appli-cation of leverage were two of the tools referred to by Ogunlesi. Politicians will find it less easy to take draconian measures against investors that have made notable improvements and pose little or no systemic risk.

Further, investors were urged

to “be prepared” for political risk

by doing all they can to factor it

into their modelling. While one

panellist admitted that the difficulty

of forecasting political risk meant

taking a “subjective view of prob-

ability” (which may have sounded

suspiciously like guesswork to

some), the question was posed as

to whether investors always observe

the observable.

In the case of Gassled, for

example, did the Norwegian gov-

ernment’s desire to encourage new

exploration and development have

ogunlesi: perception boosted by good management

the potential to negatively impact

investors in the pipeline network?

The argument could be made that

seeking to reduce transportation

costs was a measure likely to be

considered to some degree. Set

against that, one would assume the

blue-chip Gassled investor group

had received pretty strong assur-

ances to the contrary.

Private sector representatives

were also told to “ENGAGE!” with the

public side. This is written in upper

case and with an exclamation mark in

recognition of the unmistakable sense

of urgency whenever the point was

made (which was frequently). As an

infrastructure investor, “be aware that

you are part of the political process”

said Fischer. “Don’t wait until you’re

in the eye of the storm” said another

speaker. And don’t just engage with

government, but with opposition

(possible future government) and

the general public as well.

Investors were memorably

advised not to “squawk in a bubble”.

Drawing battles lines that needn’t

exist is counter-productive. Engage-

ment, on the other hand, is likely to

lead to a degree of sympathy with

the “other side’s” difficulties. In the

case of governments cutting tariffs,

for example, it’s arguably too rarely

considered that the consequences

of not doing so could be intolerable

pressure on consumers in times of

austerity. Something, somewhere

has to give.

It’s often said of asset class invest-

ing that this is a “relationship busi-

ness”. Because of the public-private

element, this is arguably particularly

true of infrastructure. In Berlin,

there was a sense that the implica-

tions of this were beginning to be

recognised – and just in time. After

all, this is a major asset class in the

making. n

fischer: politicians are ‘opportunistic’

Time to get engaged


Private infrastructure debt is here to stay – that much we can say with confidence. But we are in uncharted territory when it comes to whether it will ever supplant bank debt, or, indeed, account for the majority of infrastructure debt.

A question mark also hangs on what will prove to be the most popular way of allowing institutional investors to access infrastructure debt.

Will unlisted blind pool funds be the way forward? Perhaps listed funds? Or maybe not funds at all, but rather

bank-institutional investor partnerships, like the one teaming French bank Natixis with Belgian insurer Ageas?

Or as John Tanyeri, head of private energy finance, power & strategic investments for insurer MetLife, argued at the Berlin 2013 Summit, “managed accounts are better for infrastructure debt as clients can tailor it to their needs.”

There might even be little need to get bellicose on the subject, with all of these different solutions eventually

co-existing in a peaceful, “all roads lead to Rome,” context.

Still, there’s no denying the popularity of infrastructure debt funds. Last year alone, these vehicles managed to raise some $2.8 billion of the more than $23 billion col-lected by infrastructure funds globally.

So if you are thinking of raising a debt fund, or perhaps, investing in one, here are testimonials from three debt fund managers currently explor-ing the frontiers of infrastructure debt fundraising.

Bruno Alves talks to three fund managers treading the wide-open plains of infrastructure debt fundraising

The debt settlers

f u n d r a i s i n g

cover story

Bajer Kassis Wright

››


cover story

The pioneer

Say what you will about Marc Bajer’s Hadri-an’s Wall Capital (HWC) and the success of the Aviva Investors Hadrian Capital Fund 1, but Bajer is truly one of the pioneers of the infrastructure debt space.

As far back as 2009, the HWC founder was touting the need for institutional inves-tors to get back into infrastructure financ-ing and in 2010 he hit the road, with part-ner Aviva in tow, to raise his fund cum bond market solution.

In fact Bajer, a former monoline man, bet the house on devising a fund which would use money raised from investors to credit-enhance infrastructure bonds into A-rated territory. The fund would do this through fully-funded subordinated debt positions within senior-ranking infrastruc-ture bonds. In addition, Hadrian’s Wall would also offer comprehensive managing creditor services.

Perhaps because of the originality – some would argue complexity – of the Hadrian’s Wall concept, Bajer has been on

the road for well over two years trying to sell his idea to limited partners (LPs). In the process, he’s acquired some of the world-weariness of your typical frontiersman.

“The hardest of all the lessons I’ve learned [over the last two years] is that to implement a value proposition with a market changing impact takes a lot of patience and takes much longer than I had

expected,” Bajer says. Still, like a prospector who believes there is gold to be found, he adds: “But the rewards [if successful] are unparalleled.”

The European Investment Bank (EIB) – a seed investor in Hadrian’s Wall which then went on to create its own very simi-lar (and similarly untested) project bond solution – notwithstanding, Bajer’s vehicle is pretty much peerless among emerging debt funds.

“We are a capital markets access fund,” Bajer states. “We are designed to allow the bond market, which offers vast liquidity, to buy into investment grade infrastructure paper. Many of the other debt solutions out there are essentially offering private placements, which, when combined, number in the billions of dollars. There is no trading, no transparency and no comparators, like there are in the bond market.”

Unsurprisingly, the Hadrian’s Wall proposition comes with its own particular remunerative package attached, but Bajer, without disclosing figures, insists it is com-petitive – both when it comes to origination fees and fund management fees.

“If you combine the whole package, our origination and ongoing fees for borrow-ers are far less than comparable bank fees. When it comes to fund management fees, they are also substantially less than your typi-cal private equity infrastructure structure,” although the Hadrian’s Wall boss admits

“we have performance-based compensation, but again, less than your average fund”.

With a £150 million (€175 million; $227 million) first close under its belt, all Hadrian’s Wall needs now is to clinch a deal.

The listed fund

London-based Gravis Capital Partners was one of the underdogs at this year’s Infra-structure Investor Awards, racing ahead of time-honoured industry names like the Netherlands’ DIF and France’s AXA Pri-vate Equity to take the crown for European Infrastructure Fundraising of the Year – an accolade that, with typical British under-statement, “pleasantly surprised” partner Rollo Wright.

That it beat well-established equity players with what is essentially a

UK-focused, listed infrastructure offering just makes that achievement even more remarkable.

“A new fund broadly needs two things to launch successfully and grow: a sup-portive investor base and a pipeline of investments with suitable risk/return pro-files,” Wright offered. “We launched in 2009 in a volatile economic environment with low interest rates – a state of affairs that, to an extent, still persists – and a resulting investor appetite for depend-able, low-risk yield. On the investment side, we saw a significant demand in the infrastructure sector for long-dated debt which wasn’t being satisfied.”

He continued: “If you look at why the

banks have pulled back from the long-dated debt space, it’s mainly due to liquid-ity concerns – the dangers of borrowing short and lending long were starkly high-lighted by Northern Rock – and regula-tory pressures resulting from Basel II/III that make lending long expensive from a regulatory capital perspective.”

“What they didn’t do was pull back as a reaction to the credit quality or underperformance of infrastructure assets in general. Thus, we thought it would make sense to create a vehicle that could focus entirely on the merits of any given investment proposition without getting distracted by liquidity or regulatory constraints.”

››

“We are a capital markets access fund. Many of the other debt solutions are offering private placements”

Marc Bajer, founder & chairman, Hadrian’s

Wall Capital

Rollo Wright, partner, Gravis Capital Partners

a p r i l 2013 i n f r a s t r u c t u r e i n v e s t o r 17

cover story

The hybrid

With the infrastructure debt fundraising space getting increasingly crowded, dif-ferentiation – having an angle, a unique approach – will be paramount.

On that front, La Banque Postale Asset Management’s (LBPAM) debut infrastructure and real estate senior debt fund is already a winner.

After all, at the time of writing, it holds the distinction of being the first infrastruc-ture/real estate debt fund. More impor-tantly, it holds the distinction of being the first infrastructure/real estate debt fund to have reached a first close on €500 million

– a not inconsiderable amount for such an innovative structure.

Look beyond the surface, though, and you’ll find some strong pedigree.

LBPAM is France’s fifth-largest asset manager with €137.5 billion under management; the new debt business is headed by Rene Kassis, the long-time Paris-based former head of infrastruc-ture at Dexia and a veteran banker with

over two decades of project finance experience; and it’s structured in a way that actually separates the capital raised into two asset class specific sub-funds.

“The common theme here is real assets; that the underlying assets are either physical assets, like buildings, or essential infrastructure services,” Kassis explains. “We thought there were obvi-ous merits in combining a dual approach while offering investors the choice of two asset classes. So far, we have found that many investors like the idea of being able to invest in the two sub-funds.”

He continues: “Investors who want shorter maturities can invest in real estate debt, which has an average life of about six years and won’t go beyond 10. Those in search of long-dated debt can target the infrastructure sub-fund, which has a legal maturity of 30 years, although the weighted average life of the debt we plan to invest in is around 12 years.”

Roughly speaking, the fund will offer an average net return of circa 4 percent.

“If you’re focusing in infrastructure, then you get a bit more and if you’re more interested in real estate then you get a bet less,” Kassis said.

Despite the two asset class specific sub-funds, when it comes to fees, the vehicle is treated as a single package, Kassis pointed out.

“We are offering the same remuner-ation package which involves a fixed element and a variable component,” the debt boss explained. The latter is not, however, an outperformance fee:

“The variable portion is tied to whether we exceed a certain spread, after which there is a sharing mechanism.”

Kassis would not be drawn into revealing how the team is charging management fees, but sources familiar with the fundraising have suggested the management fee is well below 1 percent.

With nine months on his fundrais-ing timetable still to go, Kassis said he would like to attract “more interna-tional LPs, including pensions and sovereign wealth funds. We already have a very strong French institutional investment component, although not all of the investors in our first close are French,” he pointed out.

And what is the fund’s target size? “The more the better,” Kassis answers with a laugh.

Gravis’ bet has paid off handsomely. Last year alone, the fund manager raised some £230 million (€260 million, $347 million), with a fall bumper fundraising that started off targeting £80 million and ended up at £140 million. More interest-ingly, while Gravis begun life as a subor-dinated debt provider, it now has both feet planted in the senior debt market.

“Our early investments consisted of subordinated debt secured against UK PFI projects,” explains Wright. “However, we have recently been providing senior loans in the renewable energy sector that still hit our return requirement, particularly to developers of smaller projects that are really struggling to get hold of long-dated debt.”

That focus on small-scale renewable projects is proving to be a real niche for Gravis. “The very few other long-dated debt providers are not usually willing to back smaller developers, preferring much larger projects. Given the interest we’ve seen from potential borrowers, it sometimes seems we are almost alone

in this space,” which pleases Wright, considering the very significant control and security associated with senior debt positions.

Gravis decided to go the listed fund route because “investors like the liquidity and transparency provided by a London Stock Exchange listing”. And in case you’re wondering, Gravis doesn’t plan to get rich on fees.

“We charge a management fee of 90 basis points and no performance fee. As a debt fund manager, we see our job as making sure the debt is serviced and repaid on time – the concept of outper-formance seems slightly inappropriate,” argues Wright. n

“Many investors like the idea of being able to invest in the two sub-funds”

Rene Kassis, head of European infrastructure & real estate debt fund, LBPAM


In 2002, when mutual funds were losing their once-tight grip on investors, the separately managed account, or SMAs, were trotted out as the latest evolution in traditional asset management.

Since then, SMAs have earned their place, prompting us to wonder if managed accounts could some-day challenge funds as a preferred method for institutional capital to access infrastructure. Kelly DePonte, a 31-year research veteran and manag-ing director of placement agent Probi-tas Partners, here shares his insights.

The message? While managed accounts have gained prominence, the gloss isn’t coming off traditional funds anytime soon.

currently, what’s the role of separately managed accounts in infrastructure investing? KD: I think separately managed accounts (SMAs) are going to become increasingly important, but man-aged accounts are something really only [applicable] for larger inves-tors. Smaller investors wanting to get exposure to infrastructure are going to need access to third-party funds.

I think on the SMA side, there has been more activity in core ‘brown-field’ infrastructure then there has

necessarily been in renewables or ‘greenfield’ infrastructure, or oppor-tunistic investment. I do think SMAs are becoming more important for brownfield infrastructure, and espe-cially when you look at the return pro-file of core brownfield funds. The net return is 10 percent or so. To a lot of investors, there doesn’t seem much sense in a 2-and-20 model, it should be much lower.

What’s more relevant, and a part of this discussion, is that core brown-field fund models are under attack. Because looking at that from the standpoint of the return profile, it’s hard to put much of a fee or carry structure on it.

Is there a fee advantage with SMas?KD: The thing is, there’s no stand-ard. But it’s highly negotiated. It’s also dependent on how much money the fund manager is getting to manage. Giving someone $250 million will have a lot more clout than giving $75 million.

One of the biggest differences for investors in SMAs is that very often, there’s a lower commitment fee, but it’s like co-investment to a degree - paid on assets managed. That’s part of why certain limited partners (LPs) drop their fee. People are also push-ing on carried interest on core brown-field.

What size is too small for SMas?KD: Most managed accounts I know

Chris Glynn talked with Probitas Partners managing director Kelly DePonte to ask the private fund expert about that perennial up-and-comer, the managed account, and its impact on the asset class

‘There are different ways to skin the cat’

f u n d r a i s i n g

cover story

Deponte: core brownfield model ‘under attack’


are $100 million and up. I’m not hearing about SMAs below $100 million. But a fund man-ager has to worry about how many SMAs you can take on. Are you, as a fund manager, going to be investing pro-rata across accounts? Do you actually have to set up a queue? Such as: this investor has access to that deal, while the next investor has access to another deal?

Managed accounts certainly are popular with certain inves-tors for the ability to drop fees and expenses. At the same time, a successful SMA manager is going to have an access problem or mindshare problem between what’s given to different people.

could SMas become a trend in infrastructure? KD: There was definitely a trend on the public side, but the uni-verse on the public side is huge. On the infrastructure side, deal flow doesn’t compare.

What’s different about run-ning a SMa compared to managing a fund?KD: It’s a different mentality. One reason there’s a trend to SMAs is that most managers are being forced into it. Fundraising is becoming difficult. So they’re being forced in that direction. A new manager trying to raise a fund can find it even more difficult, so an SMA might be a better way to build a track record.

If you’re an LP looking for a managed account, you want someone with experience in the sector, who has invested capital,

cover story

“one reason there’s a trend to SMas is that most managers are being forced into it. fundraising is becoming difficult”

and can show deal flow. So if you deal with them, you get access. You would also want a degree of back office sophistication.

What’s the challenge in offering both? KD: When you look at fundrais-ing, the odd thing is that, if you have an SMA, that will be paying you less than the fund is. Your financial wherewithal as a fund manager is not quite the same depending on how many SMAs you have. Then, if it’s a truly managed account and you’re active in North America and Europe, and you take a client interested only in European toll roads and ports, then you can have an SMA with a different strategy than an underlying fund.

There are different ways to skin the cat. When you have an SMA it can be tied into a fund investing pro-rata, or it could have a slightly different strategy and a subset of transactions. Or a managed account could be totally different from the fund itself, and just a pool of money which might be investing paral-lel with the fund or not. Does the person have any special rights other than a lower fee?

The other thing that can happen and become an issue if you’re a big managed accounts manager, you’re beginning to look at a conflict of interest - not between the GPs and LPs, but LPs and LPs. The LPs in the fund might have a conflict with the SMA guys. If you’re a small LP then you don’t have a chance to get the price pick that the larger guy has. It also might come down

to ‘Hey, because you’re $10 mil-lion and the other guy’s $150 million, he’s going to have a seat on the advisory committee, by the way’. There has begun to be more of this, more of ‘Gee are all the LPs really on the same side?’

The people who have really established track records are funds like Global Infrastruc-ture Partners. The thing about SMAs is that they can be publicly announced or not. If you think private equity is private, SMAs are more private.

Will funds always have more prestige, or is there a way for SMas to steal their thunder? KD: I think funds still have more prestige. But a lot of the separate account stuff is under the radar. What might begin to change that is a big profitable exit, [that will] get people’s attention. If you hear about an SMA being the lead investor in a big deal then that will get people’s attention.

The key thing is that it’s a vehicle for large institutional investors which write big cheques. It’s not a vehicle that can wipe out funds. The real question is,

‘When does it become a large adjunct to the marketplace?’

could SMas be the wave of the future?KD: In my opinion, no way. People begin to see a trend, like SMAs, and begin to forecast that, if it is going to continue at this rate it’s going to take over. But they don’t really understand the real environment. So, to me, that’s a load of bunk. n


assEt manaGEmEnt roUndtaBlE

In it for the long term

Given the timeframes involved, ownership of infrastructure assets is a serious undertaking – and that’s why asset management is such an important skill-set for fund managers. Andy Thomson met with three industry professionals to discuss how operational nous can make a big difference


assEt manaGEmEnt roUndtaBlE

You could say infrastructure investors are the unlucky ones. They are not short-term investors who have to roll up their operational sleeves for a limited period

only before handing the baton to the next owner. Equally, they are not investing in some kind of fixed income prod-uct which may be long term in nature but requires no operational oversight. Instead, infrastructure investors are both long term and operational.

On the face of it, that sounds like a challenge - and talking about it may sound all the more of a challenge given that Infrastructure Investor’s asset management roundtable is taking place bright and early on a Monday morning (and a cold one at that). But there are no ››

aroUnd thE taBlE

Wael Elkhouly, head of asset management, EISER Infrastructure Partners Elkhouly has over 20 years’ experience in infrastructure in various capacities as an investor/owner as well as advisor. He joined EISER in early 2009, primarily to oversee the

team managing the circa $3.5 billion portfolio of assets. This was following approximately five years with Citigroup’s

investment banking team focusing on infrastructure where he covered many infrastructure funds and advised on a number of transactions including airport privatisations in Europe and the Middle East, M&A in European utilities and transport as well as fundraising. Prior to Citigroup, he spent over 12 years with Bechtel.

niall mills, head of infrastructure asset management, First State Investments Mills is responsible for originating, due diligence and managing asset investments for the European Diversified Infrastructure Fund (EDIF). He represents EDIF on the boards of investment

at Anglian Water Group, Electricity North West and Reganosa.Prior to joining FSI, Mills was an asset director for Southern

Water, a £4.5 billion water and sewerage business in the UK, where he managed a £2 billion capital programme and regulatory asset management. Before this, he managed two railway improvement programmes, valued at £3 billion and £850 million, including complex planning and legislative approvals.

He also held senior roles with Novar Projects, Bechtel and North West Water Engineering.

Peter van Egmond rossbach, managing director of private equity & infrastructure, Impax Asset Management Rossbach joined Impax in May 2003. After starting his career with the renewables division of the US Department of Energy in 1980 and

working as aide for energy and environment to US Senator Jim Sasser, he has been engaged in energy project investments since 1983. After working in the natural gas sector in 1984 to 1985 in Oklahoma and California, Rossbach obtained his credit background as a utility and energy project debt analyst with Standard & Poor’s in 1985 to 1986. From 1986, he worked for the American IPP developer Catalyst Energy and its affiliates developing and financing energy projects and, from 1989, he spent five years as vice president of project finance for Mitsui Bank. In the mid-1990s, Peter worked at the EBRD and from 1997 to 2000 he was senior investment officer of the Asian Mezzanine Infrastructure Fund.


rouNdtable

complaints or bleary eyes around the table as Peter Rossbach of Impax Asset Management, Wael Elkhouly of Eiser Infrastructure Partners and Niall Mills of First State Investments (see biographies on p.21 for further details) mouth their greetings. These guys are fit and ready – perhaps hinting at their preparedness to deal with operational issues that may arise at any time.

But do limited partner investors fully appreciate the asset manage-ment requirement in infrastruc-ture? Perhaps because of having been mistakenly lumped in with bond-type investing in the past, the answer in prior years has almost certainly been ‘no’. Rossbach says that “LPs historically misunderstood the depth of the asset management requirement” as infrastructure investing evolved from its private equity LBO-driven fund manage-ment roots before 2008.

‘invEstinG Blind’ There may also be some misun-derstanding of the importance of asset management inherent in the new Pensions Infrastructure Plat-form (PIP), according to Mills. “It has taken five or six years to see a mature approach to asset manage-ment evolve in European infrastruc-ture funds and a handful of fund managers now do it very well. The PIP is collecting a number of LPs together without any overarching LP/GP agreement or asset man-agement strategy. They’re investing blind, they don’t know what they will be investing into, and that will be a challenge.”

Overall, however, there is a sense that perceptions are chang-ing for the better. “Some cliches

››

are still being used but I believe the appreciation of asset management has increased following the financial crisis and the re-setting of market expectations regarding value driv-ers,” says Elkhouly.

So – the inevitable question – what does asset management com-prise in an infrastructure context in the eyes of those present? In Elkhouly’s view, it simply means looking after the asset (from all angles) starting from acquisition all the way to value realisation: “This is not very dissimilar from what an “operating partner” does in the wider private equity market. You might need to improve the opera-tions, complete a refinancing, or make strategic moves such as an acquisition. You have these types of decisions to make all the way to exit. You look after the investment and you ultimately position it for value realisation.”

The issue of ‘looking after’ the investment prompts consideration

of how the long-term nature of infra-structure affects a fund manager’s attitude towards stewardship. There is agreement that certain short-term measures that may look very attrac-tive may nonetheless need to be resisted.

Rossbach explains: “In a ‘buy-build-sell’ model, between the two key value events – the acquisition and the exit uplift – lies the asset management. In a “buy and hold” model, income is the key. You have to target maximising value created. At buy-in, we will have already planned the handover. Then during the hold period, we have major tar-gets to achieve to add value and even accelerate a possible exit.”

He adds: “For the asset manager, it’s the ‘80/20 thing’ - focusing on the big things that help the portfo-lio rather than the little things that some might like to do, such as visit management frequently for updates or get too involved in junior hires. It’s an emotional discipline.”

“Some cliches are still being used but I believe the appreciation of asset management has increased”

– elkhouly

››

EISER Infrastructure LLPKent House, 14-17 Market Place, London, W1W 8AJ United Kingdom

T: +44 20 7323 7500 F: +44 20 7323 7530E: [email protected]

ARTWORKER STUDIO CREATIVE SERV ART DIR/DESIGNER

SAATCHI MASIUS File name:XXXXX_01_ EISER ad 270x205_Inf InvestorPublication: INFRASTRUCTURE INVESTOR Client: EISER Size: 270X205mmDate:16/03/13 Operator: CARL Studio Proof: 01 Client Proof: 01

Intelligent InfrastructureEISER Infrastructure Partners LLP is an independent equity fund manager with a focus on pursuing infrastructure investments in OECD countries.

www.eiserinfrastructure.com

XXXXX_01_ EISER ad 270x205_Inf Investor.indd 1 19/03/2013 17:16


Elkhouly expands on the theme: “It is difficult to divorce the operational deci-sions from the financial decisions. If the business is to be sold at a defined point in time or if it’s due to be refinanced, what-ever you do to improve the business at the operational level cannot overlook these kinds of events. For example, if you are about to sell a RAB-regulated utility, you might need to spend more money and attention developing the capex plan before the sale process (as this is a key value driver in these businesses – there is a clear link between valuation and capex plan). If you are about to embark on a difficult refinancing, you might want to consider postponing operational initia-tives with long-term equity value but which cost the bottom line in the short term.”

Rossbach stresses the importance of this long-term view with reference to a specific example: “While overall produc-tion at one site had increased, one bad month due to weather made us wonder about volatility and asset management. For instance, if we should change the way we did periodic maintenance – on a spot or scheduled basis,” he recalls. “As a result, we changed some operating methods and resisted temptations to revalue a business

due to a short-term change in production due to a bad February.”

Mills says a tendency to focus on short-term issues can be characteristic of less experienced investors. “Less experienced investors can sometimes pick up on a par-ticular headline-grabbing issue and end up being quite fixated on that one thing. But in isolation, what does it really mean? Often not very much. You really need to focus on the big stuff – the long-term risks and what you can do about them.”

dEdicatEd tEam Of course, if it’s accepted that infrastruc-ture and asset management really do go hand-in-hand, then fund managers presumably need to be well resourced. In the case of Impax Asset Management, this meant creating a dedicated team in 2009 when, in the words of Rossbach, “we had not just enough assets but also direct

responsibility for those unstaffed assets to justify it. The team now has been together for a long time”.

The Impax asset management team currently numbers five, with another one to come. Areas of expertise covered by the team include accounting, treasury, engineering, construction, operations and debt management. “All of these func-tions relate to each other; it’s no simple management task,” points out Rossbach.

“We asked ourselves: how do we balance all these abilities in-house and act coherently towards assets on the ground? People can naturally silo themselves, so we appointed a generalist – albeit with accounting and engineering training – as head of asset management to run the team and get the 80/20 balance right.”

The question posited by Rossbach with respect to the “right way” to resource the asset management function prompts consideration of whether there is a typical model. “I think it all depends on the size of the fund and the type of investments you make,” reasons Elkhouly. “You might have a very technical person in charge of an asset who has no appreciation of the overall business context and how it needs to be positioned for a refinancing or sale etc.”

He continues: “You need enough variety in your background to handle a number of different things. The more general, the less technical you will be on specific issues. The bigger the fund, the more appropriate it is to have very specialist people, such as airport experts, for example.”

“The good asset managers have got much better at understanding the general management of assets,” points out Mills.

“It should be a team effort, not solo. Senior people who understand the wider context are crucial. Even in mid-sized funds you typically have a senior team of four to six people who understand the full spectrum of asset management issues, and then you have the specialists within the team or external advisors.”

rouNdtable

››

››

“for the asset manager, it’s the ‘80/20 thing’ - focusing on the big things that help the portfolio rather than the little things that some might like to do” - rossbach

This is only directed at professionals. Telephone calls may be recorded for your security.This document is not intended to and does not constitute an offer or solicitation to invest in First State European Diversified Infrastructure Fund FCP-SIF (‘the Fund’). This advertisement has been prepared by First State Investments International Limited (‘First State’) the adviser to the Fund. First State is authorised and regulated in the United Kingdom by the Financial Services Authority under registration number 122512. Registered in Scotland (SCO79063).

FSI578_FS_1111

Worldwide, billions of people rely on infrastructure to live and do business. The roads and railways we travel on, the essential services we rely upon in our daily lives; water, gas, and electricity, are essential and valuable to any economy.

But what you may not realise are the potential benefits of investing in infrastructure. This asset class can offer investors sustainable growth and long-term inflation-protected income streams.

At First State we see infrastructure as a long-term value proposition requiring specialist skills. Our investment team brings together some of infrastructure’s brightest minds with hands on experience. Our success derives from our active investment management and asset management capabilities. We believe this is a key differentiator both from other asset classes and from competitors in infrastructure investment. With a clear mandate to select, acquire and manage assets, our aim is to deliver the true long-term benefits of this compelling asset class to investors.

First State. Worth knowing.

For more information on the First State European Diversified Infrastructure Fund:

[email protected]+44 (0) 207 332 6500

Invest in assets the world relies on.First State European Diversified Infrastructure Fund


rouNdtable

Of course, while having asset manage-ment experts can help drive a profitable outcome for fund managers, from the perspective of portfolio company man-agement they may be a cause for concern. After all, no self-respecting chief execu-tive wants a heavy-handed operations-focused third party telling them how to run the business.

FindinG thE riGht BalancE “It’s a very active engagement,” says Mills of this delicate relationship. “You have to find the right balance between sharehold-ers and the executive management team. The latter have their job to do seven days a week and it’s not easy. You need what I would describe as ‘gentle intervention’. When you try to micro-manage, manage-ment teams find it offensive – and they remember it.”

“You need to have enough visibility and be able to monitor the business perform-ance, but that needs to be done without unnecessarily alienating the manage-ment,” advises Elkhouly. “There is little point in policing the small things because, if they’re not big value drivers, they matter

less. The key is to have enough experience to identify the value drivers you want to be informed about and to put in place a proper governance system to control them.”

All of which said, the need to keep infrastructure assets on the right track is paramount. “We’re dealing with assets that shouldn’t fail – they are large established enterprises and essential public services,” says Mills. “That said, there have been dra-matic examples of failure in both public and private ownership where either man-agement or investors, or worse still, both, have lost control. The comparison is often made with venture capital funds which are more used to seeing a small number of portfolio companies fail as long as one or two others are spectacular successes. In the lower risk/return infrastructure asset

class, we simply cannot afford this.”“In many areas of the infrastructure

space, you can’t ignore problems,” stresses Elkhouly. He adds that many of the inves-tee assets provide some kind of public service and therefore not attending to the issues in a timely manner is not an option.

dramatic actionsThe need for careful asset management in infrastructure is also highlighted by increasing political and regulatory risk. This kind of risk has always gone hand-in-hand with the asset class, but there is a sense that more dramatic actions are being taken as governments are confronted by escalating budgetary pressures.

“You have to understand how regula-tion will affect you,” ponders Elkhouly.

“It is something people have generally underestimated in the past, but it is key to properly understand the regulatory framework as well as its risks. It is such a key aspect of managing assets.”

“The key driver is what affects cash flow,” says Rossbach. “We work on ‘alpha’ cash flow in asset management, but

››

“the PIP is collecting a number of LPs together without any overarching LP/GP agreement or asset management strategy”

– Mills


regulation impacts cash flow massively, especially if it’s applied retroactively.”

“Regulatory risk has always been a top risk, there is nothing new in that,” adds Mills. “Even stable regulation doesn’t mean no change, it means well-managed change, it always has. Also, it seems that the further away from Europe you are located, the more emotive a regulatory issue in Europe tends to be. It’s a func-tion of the way it gets reported, often no more than soundbites and lacking the detail. That said, the recent changes in Norway have been very damaging.”

However, he adds: “The recent changes to regulation in the UK water sector are not terribly alarming for inves-tors. It’s change, yes, but managers who have understood the bigger picture and taken the time to anticipate the impact on the wider enterprise, not just the financial structure, get it. Future chal-lenges may well be more demanding and a failure to really understand the impact

on the underlying performance of an asset could be very penal for some – we all need to be thinking about that.”

But if regulation doesn’t keep infra-structure investors awake at night, there are other bogeymen that might. Round-ing off the conversation, the roundtable participants are asked to name the most unusual asset management challenges that arose from out of the blue.

Elkhouly reflects for a moment and then says: “Not sure if they are unusual, but I have seen anything from ice inter-ruptions at airports to gas leaks in pipe-lines and management not doing their job properly and having to be replaced”.

Mills has a rather more left-field example of storms bringing down power cables in the UK’s Lake District which, he insists, is the kind of event which brings home the need for resilience planning. But Rossbach wins the award for the most surreal example when he recalls a woman under the influence of

alcohol crashing through a fence sur-rounding one of Impax’s solar parks.

“Damage was limited and we simply repaired the fence, but it reinforced the message of how quickly we need to deal with something like this to pre-vent someone getting on the site and the possibility of theft,” says Rossbach.

“In infrastructure, being reactive is not the way to run asset management. One can also positively increase EBITDA,” added Rossbach, “by doing such things as adding spot sales, cutting third-party overhead, making smart retrofits to elec-tric equipment and the like.”

The examples provided indicate that asset management is a far more intrinsic aspect of the infrastructure asset class than it is commonly given credit for. As the weight of capital seeking access mounts up, those investing should take into the account the operational spade-work required to keep portfolio assets on track. n

Impax is a leading specialist in renewable energy

infrastructure investing, offering institutional investors:

• Competitive cost infrastructure• Diversification of risk• Inflation linked income

Expert infrastructure asset management

www.impaxam.comContact: Pia Benet • [email protected]

This document has been prepared by Impax Asset Management Limited (“Impax”, authorised and regulated by the Financial Services Authority). This document does not constitute an offer to sell, purchase, subscribe for or otherwise invest in units or shares of any fund managed by Impax. It may not be relied upon as constituting any form of investment advice and prospective investors are advised to ensure that they obtain appropriate independent professional advice before making any investment in any such Fund.

Impax New Energy Investors I

Impax New Energy Investors II

Managed by Impax Asset Management.


“There are lots of misconceptions about investing in Russia,” insists Kirill Dmitriev, chief executive

officer of the $10 billion Russian Direct Invest-ment Fund (RDIF), which was launched by the Russian government to make equity investments mainly into the domestic econ-omy. “We can help to educate people about the reality and make them more comfortable.”

Dmitriev is speaking on the fringes of Infrastructure Investor’s Berlin Summit 2013, where RDIF is strongly represented – not least because the Summit is hosting a meeting of the Business 20 (B20) chaired by Dmitriev himself. The B20 is gathering to hone ideas about facilitating more infrastructure invest-ment before presenting its recommendations later this year to the Group of 20 (G20). Russia is president of both organisations in 2013.

So what is the ‘reality’ in his home market that Dmitriev refers to? “The middle class has tripled over the last five years and the stock market has grown by a multiple of 20 times over the last 12 years. Plus, the great need for investment in Rus-sian infrastructure offers excellent oppor-tunities. Not enough attention gets paid to these advantages.”

transParEnt By Dmitriev’s own admission, what does get attention are the perceived disadvan-tages – including, most notably, lack of transparency and good governance. He firmly believes that RDIF is addressing these issues. “It’s a very professional team of people with investment backgrounds and without any government officials. We have very transparent corporate

Less than two years after formation, RDIF is a $10bn fund that has formed three key partnerships and channeled almost $2bn into Russian companies. With infrastructure in the firm’s sights, Andy Thomson caught up with chief executive officer Kirill Dmitriev to find out more

From Russia with money

k i r i l l d m i t r i e v , r u s s i a n d i r e c t i n v e s t m e n t f u n d

››

KEynotE intErviEW


KeyNote iNterview

Mention of the President’s name prompts a question as to the relationship he has with the fund.

“President Putin and Prime Minister Medvedev have been big support-ers,” says Dmitriev, “as RDIF is a great way to invest Russia’s reserves. Traditionally, a lot of this has been invested in US treasuries. But why not infrastructure when you can get a higher return and invest within Russia?”

Progress to date has been impressive. In its first year, RDIF directed $1.9 billion into Russian companies - $430 million of which came directly from the fund and $1.5 billion from international co-investors.

‘conFidEncE Boost’It has also established three partner-ships: the $2 billion Russia-China Investment Fund with the CIC, 70

governance and a balanced super-visory board, which has two foreign representatives [Laurent Vigier of France’s Caisse des Depots Group and Harvard investment banking professor, Josh Lerner].”

The firm’s international advi-sory board, meanwhile, boasts such luminaries of the investment world as Lou Jiwei, chairman and chief executive officer of China Investment Corporation (CIC); Leon Black, chairman and chief executive officer of Apollo Global Management; David Bonderman, managing partner of TPG; and Stephen Schwarzman, chairman and CEO of Blackstone Group.

So how did the RDIF story begin? It was three years ago, in 2010, that Russia’s Ministry of Economic Affairs had the idea of a fund that would partner with international capital to invest in Russia. “In 2011, ourselves and Vnesheconombank [a Russian bank] began talking to large funds around the world,” recalls Dmitriev.

“We asked people: ‘If you wanted to invest in Russia, what would be needed to make you comfortable?’”

He continues: “In May of that year, investors representing over $3 trillion of capital met in the same room with President Putin. They all sat down together and the inves-tors provided very honest feedback. They told us that we needed good corporate governance but for that to really work we needed to do it properly. One of the outcomes of that conversation was that we set ourselves up on a deal-by-deal, co-investment basis so that everyone understands what we are doing and there are no fees and carried interest.”

“traditionally, a lot of this has been invested in US treasuries. But why not infrastructure when you can get a higher return and invest within russia?”

lEvEl oF iNvEstors’ satisFaCtioN

Source: Investment Climate in Russia 2012: Existing and Potential Investors Survey by

Foreign Investment Advisory Counsel

iNvEstors iN 2007

hiGh

mEdium

mixEd

low

iNvEstors iN 2012

56%71%

19%

8%

26%

17%

1% 2%


KeyNote iNterview

“We’re a government-backed fund so we have levers we can pull to produce better and more transparent regulation”

percent of which will target oppor-tunities in Russia (with a further $1-2 billion expected to be raised from Chinese institutions); a $500 mil-lion co-investment mechanism with Kuwait Investment Authority; and a pre-IPO consortium including the likes of BlackRock, Franklin Temple-ton and Goldman Sachs to invest in Russian companies planning to IPO on the Moscow Exchange.

Speaking of the CIC arrange-ment, Dmitriev says: “The part-nership with CIC was signed four months after we first spoke with them. It gave us a huge confidence boost.”

He adds that the fund’s co-investors – including the likes of BlackRock, European Bank for Reconstruction and Development (EBRD) and the Kuwait Investment Authority – “understand we can add value that is quite substantial. So, for example, in the case of water utili-ties in Russia, we work closely with the government to look at long-term investment. We’re a government-backed fund so we have levers we can pull to produce better and more transparent regulation.”

Of the five deals that RDIF has completed so far, only one has been in the infrastructure sector. It has invested in the IPO of the Moscow Exchange, pre-natal clinic network MD Medical Group, cinema chain Karo Film and forestry company Russian Forest Products (the first investment by the Russia-China Investment Fund).

The infrastructure investment saw a consortium of RDIF, Mac-quarie Renaissance Infrastructure Fund, AGC Equity Partners and Xenon Capital Partners acquire a blocking stake in Enel OGK-5, one

of Russia’s largest power generation companies. It was the largest equity deal in the Russian energy sector, while AGC’s investment was the largest ever in Russia by a Middle Eastern investor.

inFra is ‘corE arEa’ But while one infrastructure deal out of five may make it seem that RDIF’s priorities lie elsewhere, noth-ing could be further from the truth according to Dmitriev. “We want to focus on infrastructure as it’s a core area for us,” he says. “On the supply side, there are plenty of long-term investors who want to invest in infrastructure. On the demand side, governments have less cash and want private capital.” He says RDIF is aiming to do “four or five” infra-structure deals this year and “10-13 in future years”.

Dmitriev is a firm believer that private capital is needed to make infrastructure operate more effi-ciently. He cites a study from McK-insey & Co, which purported to show that the adoption of best practices could result in the productivity of infrastructure being boosted by as

much as 60 percent – or $1 trillion annually. Unsurprising perhaps that Dmitriev supports the McKin-sey findings – on a stellar CV which includes spearheading Russian pri-vate equity firms Delta Private Equity Partners and ICON Private Equity, you will also discover a two-year spell as a McKinsey consultant from 1996 to 1998.

Perhaps with that study in mind, Dmitriev wants the B20 to create an “ideal infrastructure product” with guarantees, minu-mum levels of payments and returns and the utilisation of reli-able contractors who will guaran-tee delivery according to cost and time expectations. Investors will then “have all the boxes ticked”.

He expands on the theme: “The G20 needs a free flow of investments and, in order to get those free flows, we need to ensure standard accounting and investment models. People some-times get worried about investing in certain countries for no reason. We need a standardised infra-structure product within the G20 that represents best practice. As

1999 2012

GDP per capita, PPP $ 6,787 17,698

Nominal GDP per capita, $ 1,331 13,670

Federal budget expenditures, $bn 27 414

Central Bank of Russia reserves, $bn 12 528

Average nominal monthly wage, $ 62 857

Assets of Russian banking system, $bn 59 1,529

Capitalisation of Russian stock market, $bn 40 755

Public debt, % of GDP 88.7% 11.2%

Inflation 36.5% 6.6%

thE Growth oF modErN russia iN NumBErs

Sources: World Bank, Central Bank of Russia, IMF, EIU


an example of this best practice, I would point to UK regulation.”

mUst do BEttErStill on the theme of regulation, he continues: “Governments need to do better in terms of providing con-sistency with regulation – and it’s an issue for the developed world as well as the developing world. You need to make governments commit to being good supporters of infrastructure. Private capital in infrastructure is mostly a Western European phenomenon at the moment and this needs to change. Infrastructure investment is very good for the economy and job creation, but not all G20 leaders think this at the moment.”

Dmitriev is in favour of some kind of formal agreement that would help prevent governments from reneging on their promises.

“We want to see governments sign a pledge that there will be no chang-ing of the rules of the game.” Fur-thermore, he adds: “Infrastructure funds should use their influence to debate with government. They have more bargaining power with governments than they might think. They can say ‘we will invest if you do the following’. They are in a position to demand this.”

He also feels that there is an opportunity for all those keen to promote infrastructure which may not have existed before – and may not exist again. “Some people are sceptical but I believe you can drive change through the G20 as there is a strong focus on infrastructure today. It was not the case five years ago and perhaps it will not be the case five years from now. But at this moment there is a chance to

KeyNote iNterview

assEssmENt oF dEvElopmENts iN russiaN ECoNomiC poliCy aNd lEGislativE systEm

Source: Investment Climate in Russia 2012: Existing and Potential Investors Survey by

Foreign Investment Advisory Counsel

iNvEstors iN 2007

moving in the right direction

hard to say

slowed down in the last year

iNvEstors iN 2012

drive through some very systematic improvements that we can imple-ment and then track their progress.”

By the end of the B20 meeting at a packed Berlin Summit, four key preliminary recommendations had been arrived at: the implementa-tion of major infrastructure projects covering the next 20 to 30 years by all G20 countries; the removal of key restrictions impacting cross-border investment; the adoption by G20 governments of specific mecha-nisms to attract private investment in infrastructure projects, thereby increasing their efficiency; and the

development and coordination of specific structures supporting best global practices in public-private partnerships.

All worthy aims, although Dmitriev is a realist as well as an optimist. “In Russia, change needs to happen and there needs to be a pipeline. To be fair, most other countries are trying to figure this out as well. The money is often not finding projects, and not many people are prepared to finance projects at an early stage. There are phases of the investment cycle that need to be worked on.” n

28% 6%

25% 22%

47% 72%


Given the experience he gained in project finance and infrastructure over the course of a 15-year career, not to mention his knowledge of Latin America, Eduardo Ramos could have had his pick of where to relocate.

Twenty-twelve found Ramos in New

York. His reason for calling the Big Apple

home was practical: he was working as a

managing director in project finance for

Assured Guaranty Corporation. There, the

long-time executive leveraged the Rolodex

he’d built as a banker with Casa de Bolsa

Banorte, where in 2004 he led a $200

million monetisation of the Monterrey-

Cadereyta highway in Mexico.

Now, due for a job change, and keen to

live someplace else, Ramos moved to Astris

Finance, a boutique advisory firm, and pre-

pared to leave New York. The question was:

where to? Headquartered in Washington,

D.C., Atris launched in 2000 as a subsidi-

ary of financial services provider Dexia. By

2008, newly independent Astris had set up

shop in Paris.

Ramos, however, wasn’t interested in

Europe. For one, he wanted a post in a

growth market. He was also looking to work

somewhere with a familiar feel.

“I came back,” Ramos, who was born in

Mexico, says.

Today, while Astris is expanding into

Brazil, Chile and Colombia, Ramos is

emphatic that his birthplace is the premier

infrastructure market in Latin America.

“Timing,” he stresses. “A lot of people

following Latin America, who were

focused on Brazil, are now asking: ‘What’s

the next step?’”

Mark Ramsey wouldn’t disagree. Like

Ramos, Ramsey, a layer from Australia and

a long-serving Macquarie Group executive

who’d moved to Africa to help Macquarie

launch a fund there, was also looking to

recharge his infrastructure career when

he relocated to Mexico. There, Ramsey, as

president and executive director of Mac-

quarie Capital, Mexico, has witnessed “a

little bit of the gloss come off” Brazil, and

a change in attitude toward Mexico.

“Investing is a sentimental game,” opines

Ramsey, who joined Macquarie, the Sydney-

headquartered financial services concern,

in 1997. “Brazil itself has benefited from sen-

timent. In the past, Mexico has been over-

shadowed by Brazil. To the extent people

might not view Brazil as quite as good as

before, Mexico has benefited.”

Ramsey has a point. While Brazil, as

part of the ‘BRIC’ (Brazil, Russia, India and

China) grouping, has hogged the spotlight

for the better part of the past decade as the

up-and-coming economic bulwark in Latin

America, Mexico has been developing in

its own right. The country has enjoyed 17

straight years of macroeconomic stability,

demonstrating consistently low interest rates

and decreased inflation, manageable debt

and gross domestic product (GDP) growth.

Ramos points to a “brighter macroeco-

nomic outlook” for Mexico, “the second-

largest economy in Latin America”. Ramsey,

meanwhile, credits the country as the

“largest Spanish-speaking [nation]…with

a stable democratic government”. But ask

them about their mutually-shared profes-

sion – investing private capital in public

infrastructure – and you’ll hear a more

bullish appraisal still.

“I continue to tell people what I’ve

told them before: that Mexico is the most

interesting market in Latin America,” said

Ramsey. “I tell people to take Mexico seri-

ously. This is their chance to get into the

market.”

LatAm’s next great infra play m e x i c o

couNtry report

Obliging legislation and deal flow are making Mexico a magnet for Latin American infrastructure investment. Chris Glynn reports

ramos: ’brighter macroeconomic outlook’


dollar gas pipeline upgrade, not to mention the highest-

profile project: a potential P3 to design, build and finance

an airport in Mexico City.

sEctor By sEctor“A lot of effort and thought has to be put into the area of social infrastructure,” says Ramsey. “There has to be a substantial programme of hospital building and prison construction.”

couNtry report

Mexico has been amenable to public-private infra-structure since the early 1990s. But that openness to privatisation suffered a blow in 1994 when the

‘Tequila crisis’ led to a rapid devaluation of the Mexi-can peso as well as wider economic upheaval in the Southern Cone.

By 2012, as Felipe Calderon concluded a success-

ful second term as President, Mexico was well into

its ambitious plan to accelerate investment in public

infrastructure. Under Calderon, Mexico rolled out its

capital development certificate, or CKD security. The

creation of the CKD allowed a pension fund in Mexico

to channel $15 billion into the asset class. That January,

the country passed a long-awaited public-private partner-

ship (PPP; P3) law.

“The passing of the PPP law was definitely a vote

of confidence; whether it was just that is too early to

say,” Ramsey explains. “The expectation is that it will

in due course lead to a smoother process in govern-

ment procurement, and the infrastructure community

is optimistic that law has given the federal government

the way to streamline the process.”

Ramos echoed Ramsey. “In talking to everyone, I

would say the most important aspect of the P3 law is

that there is now greater certainty in the procurement

process,” he says.

Mexico closely duplicated the Private Finance Initia-

tive (PFI) template pioneered in the UK. In banking,

project finance became a bona-fide business.

Current President Enrique Pena Nieto, who fol-

lowed Calderon, is similarly viewed as a boon for the

asset class because of his pro-infrastructure agenda.

“A lot will depend on the attitude of the Pena Nieto

administration,” says Ramsey. “But the indication so far

is that the federal government is going to use everything

it can to achieve as large a degree of infrastructure build

as in the past – and it would be consistent with his suc-

cessful approach to infrastructure when he was governor

of Mexico state.”

Pena Nieto has been vocal in outlining his ambitious

pro-infrastructure agenda. In his inaugural address, the

President included improved infrastructure in a 13-point

plan to improve Mexico. He also promoted the “Pact for

Mexico,” which involved ending the state monopoly in

petroleum and opening the industry to the private sector.

The Pena Nieto administration has also talked

about revitalising its infrastructure platform to invest

in energy infrastructure, in particular a multi-billion

anticiPatEd dEal-FloW, PEna niEto administration

Enrique Pena Nieto, the newly elected president of Mexico, has long been regarded as a champion for investment in transportation and social infrastructure. Here’s a project-specific rundown of what his admin-istration is expecting to commit capital to:

sEctor: transPortation • highway/toll road 44• railway 16• seaport 7• airport 7• telecom 2 TOTAL: 76 transPortation ProjEct shortlist• Mexico City, Quertaro Tramway • Mexico City, Toluca Tramway • Mexico City Airport • Monterrey, Subway Line 3• Guadalajara, Electric Train Expansion

sEctor: social inFrastrUctUrE • university 5• school 9• center 3• hospital 24• sport facility 35• convention center 4• other 5TOTAL: 85

“I tell people to take Mexico seriously. this is their chance to get into the market”

Data and research provided by Astris Finance


couNtry report

Banobras, the infrastructure development bank for Mexico,

has been the prime mover for social infrastructure development,

using Fonadin – the national infrastructure trust – to fund hospital

and school construction. As far as debt financing goes, Mexico, in

marked contrast to Europe, has been able to count on its com-

mercial banks for lending.

Transportation infrastructure is also a priority. Rail and road

work were put on hold while the Calderon administration wound

down. For Ramsey, the much discussed Mexico City airport project

– estimated to be a $5 billion deal – is a potentially transformative

event for the Mexico P3 market.

“The big ticket question is: what will the Pena Nieto administra-

tion do with the airport project?” Ramsey says.

Currently, Benito Juarez International Airport, the second busi-

est air field in Latin America, is “capacity constrained,” according

to Ramsey, but can’t be expanded further. Ramos says a site for a

new air field – located outside Mexico City – has been ascertained.

“We will be looking closely at the Mexico City airport project in

2013,” Ramsey says of Macquarie.

Energy is the third leg in the would-be infrastructure build – and

a lucrative possible market. Despite the need for capital to mobilise

Mexico’s energy potential, Pemex, short for Petróleos Mexicanos,

the state-run petroleum concern, is currently a dominant force, as is

state-run power company Comision Federal de Electricidad (CFE).

“In energy, the driver is already in place for a continuation of very

significant growth,” says Ramsey. “CFE and Pamex are looking to

bring gas from the US from pipeline construction. CFE is facilitating

new generation capacity. There is a serious energy deficit already,

and it will get worse. Exploration is a big likely area of new growth.”

thE road ahEadWhile the outlook for Mexican infrastructure is positive, the ongoing Mexican drug war has been a glaring media maelstrom and a nationwide concern.

“It will spook a particular kind of investor,” says Ramsey, noting

that drug-related violence has not impacted infrastructure work. “A

corporate investor is going to keep investing.”

Despite the passage of a PPP law, local government might still

struggle matching private capital to its public infrastructure.

“What is the danger? The risk is always execution on a local level,”

explains Ramsey. “That will be more difficult. Foreign capital will

become impatient. It is, however, a very low risk country.”

Ramsey, whose tenure with Macquarie has given him a global

perspective, found an apt comparison.

“I liken Mexico to South Korea in the 1980s,” he said. “That

kind of growth is within their grasp.”

“All of a sudden, people have come to realise that Mexico has

the opportunity,” Ramos said. n

mExico inFrastrUctUrE FUnds: a samPlEFund name: Fondo de Inversión de Capital en Agronegocios Logistics (FICA Logistics)AUM: $80mSector focus: industrial

Fund name: GBM InfraestructuraAUM: $398mSector focus: energy, transportation

Fund name: I CuadradaAUM: $220mSector focus: social infrastructure

Fund name: Macquarie Mexican Infrastructure Fund (MMIF)AUM: $417m Sector focus: energy, social infrastructure, transpor-tation, water and wastewater management

Fund name: Marhnos InfraestructuraAUM: $83m Sector focus: social infrastructure, transportation, water and wastewater management

Fund name: Fondo de Inversión en el Sector Energético (FISE)AUM: $321mSector focus: energy

Data provided by PEI Research & Analytics

inFrastrUctUrE invEstmEnt in mExico (PErcEntaGE oF Gross domEstic ProdUct)

2000 to 2003 3.2%

2004 to 2007 3.9%

2008 to 2011 4.7%

2013 to 2018 5.5%


u s t r a n s p o r t

These are heady days for US transport finance. After a terrible 2011 where just two privately financed transport deals closed, 2012 marked a return to some kind of form, with five deals worth a combined $3.4 bil-lion closing a total of $2.6 billion in bank debt, bonds and government loans.

This year has picked up where 2012 left off. After the closing of the US Route 460 Corridor Improvements public-private partnership (PPP) in late December with the issue of $293 mil-lion in Private Activity Bonds (PABs), 2013 began with Puerto Rico’s privatisa-tion of Luis Munoz Marin International Airport at the end of February.

Sponsor Aerostar Airport Holdings paid $615 million to secure a 40-year con-cession of the airport and has committed to $1.4 billion of capital improvements to the airport over the life of the concession.

Aerostar secured $410 million in debt to finance the concession and initial capital works. A $350 million commercial bond was priced at the end of February with a coupon of 5.75 percent and rated Baa3 by Moodys. The amortising bond, with a 22-year tenor, was expected to close as Infrastructure Investor went to press. The

remaining debt came in the form of two commercial bank debt tranches: a $50 mil-lion three-year capital expenditure facility and a $10 million revolving credit facility, all provided by UBS and RBC Capital Markets (also joint bookrunners on the bond) and the First Bank of Puerto Rico.

and nExt…Hot on the heels of Luis Munoz comes the East End Crossing P3. The project represents the state of Indiana’s side of the $2 billion Ohio River Bridges mega-project (Kentucky is building its $950 million bridge in the project with public funds), and will connect KY 841/I-265 (Gene Snyder Freeway) in north-eastern Jefferson County, Kentucky, to SR 265 (Lee Hamilton Highway) in south-eastern Clark County, Indiana.

The $1.3 billion East End Crossing is being financed on an availability payment basis, with the bulk of its $860 million capi-tal cost being funded by a PAB launched on March 11 that is targeted to haul in $641.5 million before the end of the first quarter, though it may achieve as much as $677 million. The bonds are being issued by the Indiana Finance Authority (IFA)

in two tranches – a $445.4 million, 30-year series A issue and a $196 million short-term, series B offering. The IFA will pass the funds raised to project sponsor WVB East End Partners, a consortium of Walsh Investors, Vinci Concessions and Bilfinger Berger International Holding. WVB and the Indiana Department of Transportation (InDOT) will contribute equity to cover the remainder of the capital costs.

Mayer Brown partner George Miller, whose team is representing WVB on the transaction, says the remaining funds that will give the project its anticipated $1.3 billion price tag come from additional payments made by InDOT during con-struction.

“In addition to the PABs there will be milestone lump sum payments made by the authority during construction,” says Miller.

“This is in addition to the availability payments once in operation. A portion of these milestone payments will be used for construction, and a portion will be used to pay the PAB.”

The East End Crossing and Luis Munoz Airport have a combined deal value of $1.7 billion – more than half of 2012’s total deal value - and have raised debt of $1.1 billion,

With two major transport deals closing in the first quarter, the US market has started 2013 with a bang. However, a limited project pipeline means this year is unlikely to be the one that heralds a long-awaited boom in US transport deals. John McKenna reports

sector focus

Quick off the mark

east end crossing


sector report

compared with last year’s $2.5 billion from five deals.

PaB rEliancETwo of the last three deals in the US – East End Crossing and Route 460 Corridor Improvements – have relied entirely on PABs for their funding solutions. Miller describes these tax-exempt instruments, available for highway and surface freight projects, as “the financing of choice” in the US market at the moment.

However, looking forward it is unlikely that many projects will continue to finance on a PAB-only basis. It is more likely that they will, like Virginia’s I-95 High Occu-pancy Toll (HOT) lanes P3 last year, turn to a mixture of PABs and Transportation Infrastructure Finance and Innovation Act (TIFIA) loans. These long-term, low interest government loans have until recently been restricted by an annual limit of just $122 million per year and to cover a maximum of one-third of total project costs.

This all changed last summer when President Barack Obama signed into law the Moving Ahead for Progress in the 21st Century Act (MAP 21). MAP 21 included measures to increase both the level of TIFIA loans available and the proportion of a project that they could fund. For 2013 there are $750 million of TIFIA loans avail-able, and next year there will be $1 billion available. These loans will now be able to finance 49 percent of project costs.

“There will be projects going forward that have most of their financing coming from TIFIA,” says Allen & Overy partner Kent Rowey, whose firm advised both the Virginia Department of Transportation on the Route 460 Corridor Improvements and the banks on the Luis Munoz deal.

His firm is also working on what could potentially be another of 2013’s major transport deals, the $1 billion-plus New York Goethals Bridge Replacement. Allen & Overy is representing Port Authority of New York and New Jersey on the project, and Rowey says he expects a large amount

of financing for the scheme to come via TIFIA.

“Goethals is an availability payment deal, and will probably be highly leveraged at [a debt:equity ratio of] around 90:10,” says Rowey.

“It remains to be seen whether the remainder of the finance will be through PABs or a bank consortium.”

toUGh For thE BanKsIf there is bank debt, it is unlikely to play a sig-nificant role. Both Rowey and Miller agree that with the long-term nature of TIFIA loans – which can extend up to 40 years - and PABs, the bank market is unable to compete on tenor (except as bridge finance), even if it can occasionally compete on price.

“If there’s an allocation for PABs and TIFIA, you’re always going to take it, which tends to crowd out the bank market,” says Rowey.

It is not only the bank market that is crowded out of investing in US transport, says J.P. Morgan Asset Management infra-structure debt portfolio manager Bob Dewing.

“Our debt fund doesn’t have a single US asset at the moment,” says Dewing.

“The risk-return characteristics of Euro-pean assets are far more attractive than the US. TIFIA is a fantastic programme, but they

lend at very low rates and commercial lend-ers are never going to compete.”

Looking forwards, in addition to Goe-thals there are a number of deals that have applied for TIFIA loans that may close in 2013. These include:

• the $545 million I-77 HOT Lanes project in North Carolina

• the $611 million Mid-Currituck Bridge in North Carolina

• the $960 million project to construct the Northwest Corridor in Georgia

Meanwhile, Florida in March issued Requests for Qualification (RFQs) for its Interstate-4 “Ultimate Project”, a 40-year deal that will be the largest P3 in the state’s history, topping the $1.5 billion P3 for the I-595 corridor improvement project in 2008. There may also be movement on New York’s $3.6 billion La Guardia Airport expansion and Alaska’s $1 billion Knik Arm crossing, although these deals aren’t expected to close this year.

mixEd FEElinGsWhile 2013 may well be as good, if not better in terms of deals done, than last year, Rowey, Miller and Dewing all have mixed feelings about the state of US transport finance.

Miller describes the market as “on the upswing”, while Dewing claims he isn’t that excited about the coming year, expecting bureaucratic delays to hamper some key projects.

Rowey says: “Every year we are seeing more and more transactions coming to market. Ohio [East End Crossing], Goe-thals, and Luis Munoz are all big transac-tions for 2013. This creates momentum and shows P3 to be a viable method for transportation projects and encourages others to go the same route.

“The market is still nowhere near to its full potential. The need for new roads and bridges is in the multi-trillions in the US, so three deals, while big in relative terms, is only scratching the surface of what could be done.” n

Miller: representing WVB


The European electricity market is facing probably its most challeng-ing period, both structurally and financially, since Michael Faraday first generated current. Indeed, he may well be spinning in his grave.

The progress of privatisation and de-bundling since the early 1990s was relatively smooth, built on a foundation of stable gen-eration assets, predominantly coal and nuclear, clustered along national transmission grids mapped on the backbone of coalfields and nuclear sites.

However, the industry has been hit by the perfect storm. Hands on the rudder are many, pulling slowly in different directions, while the lifeboats are few.

The causes are clear and at risk is the future of stable and secure power generation across Europe:

rEnEWaBlE GEnErationThe growth in subsidised renewable energy, now becoming a sig-nificant percentage of the generation mix, has had an impact in a number of ways:

• The intermittent nature of renewable, but with guaranteed grid priority, causes balancing issues;

• The virtual zero marginal cost disrupts market pricing;• The geographic dislocation between generation and consump-

tion (e.g. North to South Germany).

Us shalE Gas BoomThe exceptional growth in US shale gas has impacted Europe. As the US moved rapidly to replace coal generation with cheap gas, there was oversupply in global coal which flooded into Europe. This, coupled with a collapse in carbon prices (worth a dissertation on its own), meant that coal could compete with cleaner gas-fired power generation in the merit order - both squeezed between subsidised nuclear and renewables.

thE EUroPEan dEBt crisisThe banking and sovereign debt crisis crippled growth and put the cost of renewable tariff support clearly in focus. Political senti-ment has turned against the cost of renewable energy in many

European Union (EU) countries, and opened many opportune ears to climate change scepticism. It appears that a pair of euros today beats a full house of CO2 tomorrow as we play a game of poker with the Earth’s climate.

Many governments are revising their renewable energy support legislation, with tariff reductions evident across Europe. This period of uncertainty is significantly impacting the immediate investment climate for renewable energy. However, it should be superseded by a more stable and balanced market where renewable projects, well sited with good resources, can offer an acceptable return.

Renewable energy will need to compete on a more level playing field in the future, and undoubtedly it can because the cost of wind and solar will continue to fall through efficiencies and innovation. However, the immediate future will be challenging for developers and Original Equipment Manufacturers (OEMs) with short term over-capacity likely to lead to consolidation.

nUclEar PolicyThe aftershocks of the Fukushima nuclear disaster are evident in national policies towards new nuclear plants and the accelerated decommissioning of ageing nuclear assets. Even those states that are pro-nuclear will face major challenges in planning approvals which will delay by many years plant construction. Decommissioning and spent fuel processing costs are also becoming clear. For example the cost of cleaning up Sellafield, the UK reprocessing plant, is estimated at over £67 billion (€77 billion; $100 billion). You could replace the UK’s entire generation capacity for this.

aGEinG GEnEration assEtsIn most regions of Europe the generation asset base is ageing, and most new capacity has been wind or solar. This is particularly evident in Central & Eastern Europe (CEE) as indicated in the charts on the following page.

UtilitiEs invEstmEnt constrainEdThe last five years have been difficult for European utilities - tra-ditionally the main investors in European generation capacity

With European electricity generation in a state of flux, where can investors find opportunity today? Jim Campion of EnerCap Capital Partners provides a possible answer

Why CHP may be the future of European energy

e n e r c a p c a p i t a l p a r t n e r s

guest feature


- with an average decline in share price of over 60 percent since 2008, as evidenced by the ESTX Utility Index below.

Many utilities have been divesting assets to rebuild balance sheets and focus on their core territories. Additionally, the project finance debt market remains constrained, compounding the shortage of capital for new energy projects, par-ticularly in the CEE region. Unlike the US, to date private equity has not been a major factor in the power generation industry in Europe.

The investment necessary to replace ageing generation assets in the CEE region alone in the next 10 years is in excess of €20 billion. In current market conditions, the proposition for invest-ment in base-load power generation in many Western European markets is not favourable, with operating hours curtailed between renewables, nuclear and compet-itive coal. Without payments for capacity, which are being considered, investment in electricity-only generation is currently challenging.

So are there investment opportunities arising from these disruptive conditions in electricity generation infrastructure?

thE GroWinG FocUs on EnErGy EFFiciEncyEurope cannot afford to be wasteful with energy. Security of supply, climate change, long-term energy price trends and the need to be competitive in global markets, requires that Europe must embrace a more efficient energy future. It could be reasonably argued that it was erroneous global policy to prioritise renewable generation ahead of efficient use and generation.

The tide is turning. Political senti-ment is favouring emphasis on energy efficiency, as a more cost-effective way to reduce carbon emissions. The Energy Efficiency Directive 2012/27/EU (EED) is intended to reduce net energy con-sumption by 20 percent by both more efficient energy use and generation. A cornerstone of the Directive is to increase the utilisation of Combined Heat and Power (CHP) where waste heat in the process of producing electricity is utilised in heating or industrial processes, signifi-cantly increasing overall energy efficiency. As shown below, typically 60 percent of energy consumed in an electricity-only generation plant is lost to the atmosphere.

Currently, approximately 11 percent of Europe’s power generation is from CHP. The CEE region has substantially more, as a positive legacy of central com-munist planning. For example, in Poland approximately 50 percent of the popula-tion is connected to district heating sys-tems which are commonly supplied by CHP plants. Much of the infrastructure is aged and requires substantial invest-ment. The EU EED mandates that CHP must be the default solution for all power generation above 20 megawatt thermal (MWth) input, and that existing CHP/district heating plants must be maintained.

The secure additional revenues from long-term heat sales contracts arising from modern highly efficient gas-fired (or bio-mass) CHP plants provides an attractive proposition compared with an electricity-only power plant. Most countries provide subsidies for high-efficiency cogeneration, which will be sustained or strengthened under the EED. The critical difference is that CHP returns are enhanced by these subsidies but the industry is not solely reli-ant on this support, as is the case with most renewable generation. Supporting CHP is a far lower-cost route to carbon reduc-tion compared with renewable subsidies.

FlExiBlE GEnEration imProvEs rEtUrns and ProvidEs lonG-tErm sEcUrityModern gas-fired CHP plants, engines or turbines provide a high degree of flexibil-ity in operation. In particular, their abil-ity to start and stop quickly is becoming

guest feature

Age of Romanian Power Plants Age of Poland’s Power Plants by Fuel

increasingly important in balancing elec-tricity grids to offset the intermittency of wind and solar energy. A plant can follow the heat supply demand and also provide valuable balancing and ancillary services to the grid. For example, in the summer season, when heat use is low, a large por-tion of the plant’s electrical capacity can be contracted for ancillary services (e.g. fast-start response).

As electricity markets evolve over the life of the asset (25+ years), this flexibil-ity enables the asset to perform optimally according to market conditions. This will be significant as capacity payments and fast-response balancing services are likely to increase in value.

EFFiciEnt and FlExiBlE PoWEr GEnEration: an attractivE assEt classThe complex changes impacting the European power sector has provided an opportunity for private equity infra-structure investors to capture secure, long-term, income assets, in what is in our view the emerging sweet-spot in the European energy sector. We believe the CEE region offers exceptional potential in this regard, benefitting from its exten-sive district heating infrastructure, and where most countries have maintained throughout the debt crisis higher GDP growth and lower sovereign debt than most Western states.

Having identified the opportunity, as a CEE regional energy specialist, Ener-Cap Capital Partners is launching the EnerCap Efficient Energy Fund (E3F1). It will target €350 million to invest in a series of pre-screened projects serving this strategy across the CEE region. The E3F1 fund will invest in 8 to 10 high-effi-ciency energy projects in the CEE region which will deliver low-cost, clean energy to consumers while providing investors with a stable source of predictable cash flows. n

Jim campion is a partner at enercap capital Partners, a czech republic-based fund man-ager investing in clean energy projects across central, eastern and South-eastern europe

guest feature

SUBSCRIBER OFFER:Quote II10 today and

receive a 10% discount

A compendium of institutional investor attitudes to the unlistedinfrastructure asset class

• Find out what is driving investor appetite and allocation to unlisted infrastructure funds

• Understand institutional investors’ decision-making process on fund allocation

• Learn what LPs are looking for when selecting a fund manager

• Interpret the latest information on fund terms and structures

• Discover how fund investors choose different infrastructure strategies

ORDER YOUR COPY TODAY

INSIDE THE INFRASTRUCTUREFUND INVESTOR

www.peimedia.com/infrafundinvestor +44 (0) 20 7566 5444 / +1 212 645 1919 [email protected]


iNvestor profile

The Catholic Superannuation Fund (CSF) is a public offer superannuation scheme established in 1971 to provide retirement benefits to approximately 78,000 former employees of Catholic Schools, the Clergy and Catholic Church Agencies. The Trustee employs in excess of 20 investment managers, which in turn invest in a diverse array of asset classes on behalf of the retirement fund.

The A$4.48 billion pension fund allocates 7 percent of its total assets to infrastructure and currently invests in approximately six private infrastructure funds which are generally well diversified across all sectors. The latest commitment CSF has made is in Capital Dynamics’ US Solar Energy Fund. The superannuation fund committed A$25 million to the fund in 2012, and clean energy is one of its favoured areas for future investment.

Investing at its strategic target allocation of 7 percent, CSF is looking to make further investments to maintain its infrastructure allocation in 2013 and is open to all future investment opportunities, especially in Australia. n

contacts

Level 1333 Collins StreetMelbourneAustralia 300061 3 9648 470061 3 9648 4720

[email protected]

ms. libby sparshattInvestment ManagerMelbourne, Australia61 3 9648 [email protected]

mr. Garrie letteChief Investment OfficerMelbourne, Australia61 3 9648 [email protected]

mr. William curreyInvestment OfficerMelbourne, Australia61 3 9648 [email protected]

mr. Frank PeganChief Executive OfficerMelbourne, [email protected]

catholic superannuation Fund (csF)

North America

Western Europe

CEE Middle East / Africa

Asia-Pacific

Latin America

Unlisted Infrastructure

Listed Infrastructure

Direct Infrastructure

Energy

Transport

Social Infrastructure

Renewables

Industrial

Waste

Water

Telecoms

Mining

Other

aPPEtitE

allocation mix

Energy

Transport

Social Infrastructure

Renewables

Industrial

Waste

Water

Telecoms

Mining

Diversified or no Sector Preference

Other

sector

Min Max

Global

Regional

North America

Western Europe

Central & Eastern Europe

Middle East / Africa

Asia-Pacific

Latin America

Country Specific

Min Max

Unlisted Infrastructure

Listed Infrastructure

Direct Infrastructure

Other

Geography

allocation Breakdown

institUtion tyPEPENSION FUND

assEts / FUnds UndEr manaGEmEntA$4.48BN

cUrrEnt allocation to inFrastrUctUrE7%

tarGEt allocation to inFrastrUctUrE7%

allocation ranGE For inFrastrUctUrEMIN 5%

allocatEd to inFrastrUctUrEA$0.31BN

Infrastructure 7%

All other Investments

81%

Real Estate 9%

Private Equity 3%


fuNds iN marKet

Fund name Firm current size (m)

target size (m)

vintage Geographic Focus sector Focus

Actis Infrastructure Fund III Actis $750 2012 Africa, Asia, Latin America

Energy

Alinda Global Core Infrastructure Fund Alinda Capital Partners $340 $3,000 2012 Noth America Diversified, UtilitiesAllianz Infrastructure UK Debt Fund Allianz £1,000 2013 United Kingdom Social Infrastructure, TransportAlterna Core Capital Assets Fund II Alterna Capital Partners $360 $750 2013 North America Energy, Transport, Industrial

Altius Real Assets Fund Altius Associates $12 $500 2012 North America, Western Europe

Energy, Others

Ambienta II Ambienta €300 2013 Global Energy, Renewables, Transport, Water, Waste

American Capital Infrastructure Fund American Capital $200 2012 North America EnergyAMP Capital Infrastructure Debt Fund II AMP Capital Management $1,000 2013 Asia, Europe, North

AmericaDiversified

Arab Financing Facility for Infrastructure (AFFI) IFC Asset Management / Islamic Development Bank

150 $1,000 2011 Africa/Middle East Diversified

Armstrong South East Asia Clean Energy Fund Armstrong Asset Management

$66 $150 2012 Asia Pacific Energy, Renewables

Ashmore Colombia Infrastructure Fund I Ashmore Investment Management

$250 $500 2009 Latin America Diversified

Aviva Investors European Renewable Energy Fund Aviva Investors €300 €500 2011 Central & Eastern Europe, Western Europe

Renewables, Energy

Aviva Investors Hadrian Capital Fund Hadrian's Wall Capital/Aviva

£160 £1,000 2012 Western Europe Energy, Social Infrastructure

Balfour Beatty Infrastructure Fund Balfour Beatty £200 £750 2013 North America, Western Europe

Transport, Brownfield

Barclays Natural Resources Energy Fund Barclays Natural Resources Investments

$400 $900 2011 Global Energy, Renewables

BlackRock NTR Renewable Power Fund Blackrock $288 $1,500 2012 Global Energy, RenewablesBlue Tip Energy Partners Fund II Blue Tip Energy

Management$250 2012 United States Energy

Broad Street Energy Partners Goldman Sachs $358 $3,500 2012 Global EnergyBTG Pactual Infraestrutura II FIP BTG Pactual R$3,000 2012 Brazil DiversifiedCapAsia ASEAN Infrastructure Fund III CapAsia $100 $350 2012 Asia DiversifiedCapenergie II Crédit Agricole Private

Equity€121 €200 2011 Western Europe Renewables

Casaforte Energia FIP Casaforte Investimentos R$200 2013 Brazil RenewablesCasaforte Eólico FIP Casaforte Investimentos R$500 2013 Brazil RenewablesChina District Energy Fund Swiss Asia Financial

Services€84 €500 2011 Asia-Pacific Energy

China-ASEAN Investment Cooperation Fund Export-Import Bank of China, CIC

$900 $10,000 2010 Asia Pacific Transport, Social Infrastructure ,Energy, Telecoms

Cleantech Latin America Fund II Emerging Energy & Environment

$33 $150 2012 Latin America Renewables, Energy

Core Infrastructure Indian Fund Kotak Mahindra Group $90 $300 2013 India Energy, TransportationCVC European Infrastructure Fund CVC Capital Partners €202 €2,000 2012 Central & Eastern Europe,

Western EuropeDiversified

Dalmore Capital Fund Dalmore Capital Limited £130 2012 United Kingdom PFIsDB Global Infrastructure Fund DB Private Equity €250 2012 Global DiversifiedDG Infra Yield Fund Inframan NV/SA €163 €200 2011 Western Europe Renewables, Transport, Telecoms,

EnergyDIF Infrastructure III DIF €604 €600 2012 Western Europe Renewables, Transport, Social

Infrastructure, EnergyEIG Energy Fund XVI EIG Global Energy

Partners$4,250 2013 Global Energy

EISER Infrastructure Fund II EISER Infrastructure Partners

€277 €1,000 2011 Western Europe Energy, Transport, Social Infrastructure, Renewables, Waste

Eland Green Energies IV Eland Private Equity €150 2012 Western Europe RenewablesEnergy Power Partners Fund I Energy Power Partners $56 $500 2013 North America Energy, RenewablesEnerVest Energy Institutional Fund XIII EnerVest $2,000 2012 North America EnergyEredene Capital India Infrastructure Fund II Eredene Capital $400 2010 Asia-Pacific Transportation, DiversifiedFIDEPP2 Natixis Environment &

Infrastructure$180 2011 Western Europe Diversified

Foresight Environmental Fund Foresight Group $114 $325 2011 Western Europe WasteGlobal Energy Capital Global Energy Capital $104 $300 2010 Africa, North America EnergyGlobal Strategic Investment Alliance Borealis Infrastructure $7,500 $20,000 2012 North America, Europe DiversifiedGreen for Growth Fund Oppenheim Asset

Management€300 2010 Europe Renewables

Greener Capital Partners II Greener Capital $125 2011 North America Clean TechnologyHarbert Power Fund V Harbert Management

Corporation$500 2012 North America Energy

Harbourmaster Infrastructure Debt Fund Harbourmaster Capital Management

€2,000 2012 Western Europe Diversified

HSBC Infrastructure Fund III HSBC Specialist Investments

$580 $1,000 2010 Global Social Infrastructure, Transport

iCON Infrastructure Partners II iCON Infrastructure €250 €500 2012 North America, Europe Energy, Transport, Water

IDBI India Infrastructure Debt Fund IDBI Bank $5,000 2012 India Transport

IFC Global Infrastructure Fund IFC Asset Management $1,000 2011 Global Diversified

source: www.iNfrastructurecoNNect.com


fuNds iN marKet

Fund name Firm current size (m)

target size (m)

vintage Geographic Focus sector Focus

iFCI Sycamore Infrastructure Fund IFCI/Sycamore $500 2011 Asia-Pacific Energy, Transport

India Infrastructure Development Fund (IIDF) UTI Asset Management $120 $300 2011 India Transport, Energy

India Infrastructure Debt Fund Infrastructure Leasing & Financial Services Ltd

$2,000 2012 India Diversified

Indian Infrastructure Advantage Fund ICICI Venture $1,000 2010 India Transport, EnergyInfraCo Sub-Saharan Infrastructure Fund InfraCo Management

Services$200 2012 Africa Diversified

InfraMed Infrastructure Fund InfraMed Management SAS

€385 €1,000 2010 Africa/Middle East Transportaion, Energy, Urban Infrastructure

Infrastructure Coalition Program Aquila Infrastructure Management

C$105 C$750 2011 Global Diversified

InfraVia European Fund II OFI InfraVia €150 €400 2012 Europe DiversifiedInfraVia French Infrastructure Fund OFI InfraVia €200 2012 France DiversifiedInnisfree PFI Secondary Fund 2 (ISF2) Innisfree £464 £800 2011 North America, Western

Europe, Central & Eastern Europe

Diversified

Irish Infrastructure Trust AMP Capital Management €300 €1,000 2011 Western Europe Diversifiedix:Africa NextEnergy Capital €400 2011 Africa Energy, RenewablesJPMorgan Asian Infrastructure & Related Resources Opportunity Fund II

JP Morgan Asset Management

$1,500 2013 Asia-Pacific Energy, Social Infrastructure, Transport, Water

Latin Power Fund IV Conduit Capital Partners $500 2012 Latin America Energy Latin Renewables Infrastructure Fund Real Infrastructure Capital

Partners$50 $150 2012 Latin America Renewables

Lime Rock Resources III Lime Rock Partners $250 $600 2013 United States EnergyLloyds Bank UK Infrastructure Partners Lloyds Banking Group £150 £250 2012 United Kingdom DiversifiedMacquarie European Infrastructure Fund 4 Macquarie Infrastructure

and Real Assets€2,000 2010 Central & Eastern Europe,

Western EuropeEnergy, Telecoms, Transport

Macquarie Everbright Greater China Infrastructure Fund

China Everbright/Macquarie Group

$729 $1,500 2011 Asia-Pacific Diversified

Macquarie Infrastructure Partners III Macquarie Group $2,000 2013 North America DiversifiedMacquarie Korea Opportunities Fund II Macquarie Group $1,000 2010 Asia-Pacific DiversifiedMacquarie Mexican Infrastructure Fund Macquarie Group $408 $1,100 2010 Latin America Transport, Water, Waste, Energy,

Social Infrastructure, TelecomsMacquarie Renewable Energy Infrastructure Fund Macquarie Group $600 2011 North America Energy, RenewablesMaybank MEACP Clean Energy Fund Maybank MEACP Pte. Ltd $350 2011 Asia-Pacific Energy, RenewablesMC Seamax Shipping Opportunities Fund MC Asset Management

Holdings$750 2013 Global Transport

Mother Earth Biofuels Fund I Mother Earth Investments $150 2011 Asia-Pacific Renewables, EnergyNomura India Infrastructure Fund Nomura Holdings $500 2012 Asia-Pacific DiversifiedNOVA Energy II FIP Nova Investimentos R$500 2013 Brazil EnergyPantheon Global Infrastructure Fund II Pantheon Ventures €350 2012 Global DiversifiedPost Oak Energy Capital Fund II Post Oak Energy Capital $500 2013 North America EnergyPrime Renewables Prime Capital €600 2012 Western Europe RenewablesRBC Diversified Infrastructure Fund RBC Global Asset

Management$90 $250 2010 Global Diversified

Real Asset Energy Fund Solar Investment Group €500 2012 Global Energy, RenewablesRenewable Energy Infrastructure Fund Global Energy Investors $200 2010 North America Renewables, EnergyRidgewood Energy Oil & Gas Fund II Ridgewood Energy $750 2013 North America EnergySaigon Asset Management IndoChina Energy Fund

Saigon Asset Management

$350 2011 Asia-Pacific Energy, Renewables

Seqimco Infrastructure Debt Fund Sequoia Investment Management Company

$1,000 2011 Western Europe Diversified

SR Infrastructure II Blackrock $350 2012 Western Europe DiversifiedSREI Infrastructure Opportunities Fund SREI Infrastructure

Finance$1,000 2012 Asia-Pacific Transportation, Energy, Diversified

SREI Venture Capital Infrastructure Fund SREI Venture Capital $500 2011 Asia-Pacific DiversifiedStar America Infrastructure Fund Star America Infrastructure

Partners$46 $400 2012 North America Diversified

Starwood Energy Infrastructure Fund II Starwood Energy Group Global

$1,000 2013 North America Energy

Stonepeak Infrastructure Partners Stonepeak Infrastructure Partners

$905 $1,000 2012 North America Energy, Water, Waste, Transport, Telecoms, Social Infrastructure

SUSI Energy Efficiency Fund SUSI Partners €250 2012 Western Europe RenewablesTBA Hinduja Group $500 2013 India Transport, EnergyTerra Firma Green Infrastructure Fund Terra Firma €3,000 2013 Global RenewablesUBS International Infrastructure Fund II UBS Global Asset

Management$2,000 2012 Global Diversified

UniInstitutional Erneuerbare Energien Sicav-SIF Union Investment €50 €300 2012 Western Europe RenewablesWanthorpe Water Fund Wanthorpe Limited $500 2011 Asia-Pacific Water, WasteWestbourne Capital Infra Debt Fund Westbourne Capital A$1,400 A$2,000 2011 Asia Pacific Energy, Telecoms, TransportWestly Capital Parnters II Westly Group $50 $175 2011 Asia-Pacific, North

AmericaEnergy, Renewables

WHEB Infrastructure Partners Fund WHEB Infrastructure €200 2010 Central & Eastern Europe, Western Europe

Energy, Renewables

Yorktown Energy Partners X Yorktown Partners $1,500 2013 North America Energy

source: www.iNfrastructurecoNNect.com


Zouk Infrastructure Fund II Zouk Capital €200 2011 Europe Renewables

Navigator

Published by: PEI londonSecond floor, Sycamore House, Sycamore StreetLondon ECIY 0SG

nEW yorK3 East 28th Street, 7th FloorNew York, NY 10016

honG KonG14/F, Onfem Tower, 29 Wyndham Street, Central, Hong Kong

annual subscription:A subscription to Infrastructure Investor gives you full access to the InfrastructureInvestor.com website [including daily email news digests and weekly email commentary], access to the digital edition of each magazine as well as one copy of the print version which is published 10 times a year [plus the Annual Review and all supplements.] To subscribe contact us on the above numbers or email [email protected].

Printed in the UK by Hobbs the Printers www.Hobbs.uk.com

ISSN 1759-9539

© PEI 2013 Copyright protected: Copying any part of Infrastructure Investor is unlawful without the prior written permission of the publisher. No part of this publication can reproduced or transmitted in any form or by any means nor held in any information storage or retrieval system. To request permission please contact PEI Media in London.

No warranty: Whilst every reasonable effort has been made to ensure its accuracy, neither the publisher nor any contributor accepts any responsibility or liability for the accuracy of any part of the content in this publication. Readers should also be aware that external contributors June represent firms that June have an interest in companies and/or their securities mentioned in their contributions. No statement in this magazine is to be construed as a recommendation to buy or sell securities in any entity.

Cancellation policy: You can cancel your subscription at any time during the first three months of subscribing and you will receive a refund of 70% of the total subscription fee paid. Thereafter no refund is available [although the subscription can be transferred to another individual in the same organisation at any time. Any subscription cancellation or change must be sent in writing [fax, email or mail] to the subscriptions department at any of our offices listed above.

The new infrastructure: a definition

Infrastructure is the term that covers the man-made facilities that enable any economy to operate. It can be segmented further into three broad types: transportation [e.g. railways, roads and airports], utilities [e.g. energy generation and distribution, water and waste processing and telecommunications] and social infrastructure [e.g. schools, hospitals and state housing]. This magazine and its accompanying website cover all three types. Although traditionally the preserve of governments, the funding and operation of infrastructure today sees significant participation by the private sector – either in partnership with the public sector [PPP] or by itself. The range of private sector participants has grown alongside the more varied ways of funding what inherently are long-term, capital intensive projects. Financing instruments now include debt or equity and can come from banks, other financial institutions, developers, funds and other institutional investors. Not only are new infrastructure projects being developed by groups of these institutions but existing infrastructure assets are now being purchased by such syndicates. The range of projects that the term covers today, its importance to every economy globally, the prominent role of the private sector and its relevance to institutional capital as a distinct asset class to invest in either directly or indirectly is what defines “the new infrastructure”. Infrastructure Investor is dedicated to covering the new infrastructure globally.

CompaniesAEW Capital Management 8

AGC Equity Partners 31

Ageas 14

Alberta Investment Management Corporation 9

Allen & Overy 37

Allstate Investments 9

American Society of Civil Engineers 4

AMP Capital 9

ANA 10

Apollo Global Management 30

Astris Finance 33

Barclays Capital 9

BCIMC 6

Bilfinger Berger 36

BlackRock 31

Blackstone Group 30

Caisse de Depots Group 30

Catholic Superannuation Fund 41

China Investment Corporation 30

Citi Infrastructure Investors 9

Corporacion America Group 9

Delta Private Equity Partners 31

Denison 8

DLA Piper 4

E.ON 6

EISER Infrastructure Partners 21

EnerCap Capital Partners 38

Ferrovial 9

First Bank of Puerto Rico 36

First State Investments 21

Flughafen Zurich 10

Franklin Templeton 31

Global Infrastructure Partners 9, 10, 12

Goldman Sachs 31

Gravis Capital Partners 16

GS Infrastructure Partners 9

Guggenheim Partners 8

Hadrian’s Wall Capital 16

Hastings Funds Management 9

ICON Private Equity 31

Impax Asset Management 21

Industry Funds Management 9

Infrastructure Partnerships Australia 4

John Hancock Life Insurance 9

JP Morgan Asset Management 6

Kuwait Investment Authority 31

La Banque Postale Asset Management 17

La Caisse 6

Legg Mason 7

Macquarie 7, 31, 33

Mayer Brown 36

MetLife 14

Morgan Stanley Infrastructure 8

Natixis 14

Ontario Teachers Pension Plan 9

Partners Group 9, 10

Probitas Partners 18

Queensland Investment Corporation 8

RBC Capital Markets 36

Russian Direct Investment Fund 28

TIAA-CREF 9

TPG 30

UBS 36

Ullico Infrastructure Fund 9

Vancouver Airport Services 9

Vinci Concessions 8

Vnesheconombank 30

Western Asset Management 7

Xenon Capital Partners 31

Xerox 8

PeopleBajer, Marc 16

Baker, Norman 4

Black, Leon 30

Bonderman, David 30

Campion, Jim 38

Cranley, John 8

Currey, William 41

Deponte, Kelly 18

Dewing, Bob 37

DiLoreto, Gregory 4

Dmitriev, Kirill 28

Dowd, Stephen 9

Elkhouly, Wael 21

Fischer, Joschka 12

Jiwei, Lou 30

Kassis, Rene 17

Lerner, Josh 30

Lette, Garrie 41

Lyon, Brendan 4

Mallory, Mark 8

Miller, George 36

Mills, Niall 21

Ogunlesi, Adebayo 10, 12

Osborne, George 4

Pegan, Frank 41

Pena Nieto, Enrique 34

Ramos, Eduardo 33

Ramsey, Mark 33

Rowe, Jane 9

Rowey, Kent 37

Schwarzman, Stephen 30

Sparshatt, Libby 41

Tanyeri, John 14

van Egmond Rossbach, Peter 21

Vigier, Laurent 30

Walsh, Colin 4

Weisdorf, Mark 6

Wright, Rollo 16

Zelouf, Mike 7

Paper fromresponsible sources

FSC® C020438

MIX®

THE LPA ANATOMISED50+ LPA terms analysed and deconstructed

Private Equity International’s groundbreaking new title, The LPA Anatomised, presents aunique, detailed and highly practical guide to the complexities of negotiating key fundterms enshrined in LPAs.

Lead edited by Nigel van Zyl of international law firm Proskauer Rose, The LPA Anatomisedsystematically identifies and analyses all the main fund terms in private equity.

Key areas covered include:• The challenges of aligning GP/LP interests in the current economic cycle• How the ILPA Principles are influencing and shaping key LPA terms• Why European funds and US funds differ in their approach• The approach fundraisers in emerging markets are taking• Insight into how lawyers facilitate GP/LP consensus in a

hypothetical case study of a challenging LPA negotiation• Preferred terms highlighted, based on our

revealing LP survey

AVAILABLE NOWOrder your copy of this essential title today:

SPECIAL OFFER: 15% DISCOUNT INFRASTRUCTURE INVESTOR SUBSCRIBERS : Order your copy today quoting IISUB

+44 (0) 20 7566 5444 | +1 212 645 1919 ext. 115

[email protected]

www.privateequityinternational.com/LPA

11342 LPA Anatomised Advert II_Layout 1 28/11/2012 11:37 Page 1

When it comes to infrastructure investment, you need to work with experts. Antin Infrastructure Partners is an independent fund manager specialising in low risk, high cash yielding investments in operating infrastructure assets in the Energy and Environment, Transportation and Telecom sectors in Europe.

The European Infrastructure experts

www.antin-ip.comThis advert is issued by Antin Infrastructure Partners, a member of BNP Paribas Investment Partners (BNPP IP) *,

and is produced for information purposes only and does not constitute an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or be taken as investment advice. * BNP Paribas Investment Partners” is the global brand name of the BNP Paribas group’s asset management services.

The individual asset management entities within BNP Paribas Investment Partners, if specified herein, are for information only and do not necessarily carry on business in your jurisdiction. For further information, please contact your locally licensed Investment Partner.

advert_AntinIP_205x270.indd 1 25/11/10 12:05

DMITRIEV: THE $10 MAN LURING CAPITAL TO …...DMITRIEV: THE $10BN MAN LURING CAPITAL TO RUSSIA...

Documents

Transcript of DMITRIEV: THE $10 MAN LURING CAPITAL TO …...DMITRIEV: THE $10BN MAN LURING CAPITAL TO RUSSIA...