Banks have made nearly $1bn (€800m) in advisory and financing fees in the booming global infrastructure market this year, prompting consultants to warn that investors are putting returns at risk by buying overpriced assets.
Advisory fees in the global mergers and acquisitions market have hit $830m this year, nearly treble the size of the fees pool at the same time last year, according to Thomson Financial, a data provider. Financing fees total $128m, taking the total to $958m. The value of deals has reached nearly $500bn, more than the total for the past four years. Goldman Sachs, which did not rank among the top 25 infrastructure advisory banks last year, leads the field, having earned more than $107m in advisory and financing fees, according to Thomson. The growing number of companies raising infrastructure funds, and hedge funds and pension funds targeting investment in the sector, as well as continued pressure on governments to raise funds by selling assets, suggest the market will remain busy well into 2007, according to bankers. Ten infrastructure funds have been raised this year, with a further 17 being raised, according to research by Private Equity Intelligence. That compares with nine funds raised last year and seven in 2004. The average size of the funds has risen from £150m (€222m) in 2000 to £350m this year. Financial News has learnt private equity firm CVC Capital Partners is considering establishing an infrastructure fund, while UK buyout house Star Capital has closed its second fund and M&G Investment Management is targeting at least £750m for its infracapital fund. They will be followed to market by a spate of launches in the coming weeks. Speaking at an infrastructure conference last week, John Burnham, head of infrastructure at Citigroup, said up to eight funds were to launch funds "imminently". One private equity headhunter said he knew of up to three small teams that had left investment banks in recent weeks to establish infrastructure advisory or buyout firms. He declined to give further details. Bankers and private equity firms claim the number of investors targeting the sector is growing strongly. The Netherlands' €201bn ABP pension fund is forming partnerships with some of its fund managers to invest directly in infrastructure (see Dutch pension funds turn towards derivatives, page 26), while hedge funds including London-based Orn Capital are understood to be considering investing in infrastructure for the first time. The rush into the sector has seen the share prices of its companies outperform the market. Infrastructure stocks in Europe have risen 97% since the beginning of 2004, compared with the return of 37% of the FTSE Eurofirst 100 over the same period, according to the Macquarie Global Infrastructure index. Global infrastructure stocks have strongly outperformed the S&P 500 over three years. Jane Welsh, investment consultant at Watson Wyatt, said she had 15 corporate pension fund clients that wanted to make first-time allocations of about 5% of total assets to infrastructure. However, she warned the stampede to the sector could cause investors to overspend. She said: "In the medium term, there are lots of opportunities but there could be a bubble in the prices some of these assets are going for, like BAA and ABP. I'm not saying these assets are overpriced but I'm concerned they might be. If they are paying too much, investors are going to make lower returns than they would have done."
