Renewable energy sectors in North America, western Europe and Australia will continue to create attractive investment opportunities, whereas regulatory changes globally raised uncertainties about power generation facilities, said an executive director of Australia-based IFM Investors.
The US Federal Reserve’s rate-hiking cycle is unlikely to change global capital flows significantly in the near term, given that markets have largely priced in the policy move. But should the bond yield curve flatten further on concerns for the US growth, capital may shift accordingly, Deepa Bharadwaj, an executive director of IFM Investors, told the Korean Investors.
Despite the robust US economy, the world’s largest economy seems to be past the peak in the growth cycle and downside risks to the global economy are building amid concerns about trade wars and their impact on emerging markets, she added in a recent email interview.
Bharadwaj expects to see some deal flows in Asia after over the next few years, after sourcing attractive deals in Mexico, Poland and Turkey in recent years.
In South Korea, it is targeting deals for an investment of at least $500 million each.
She has responsibility for fundraising, sourcing investment opportunities, transaction execution at the infrastructure investment company.
IFM Investors, owned by 27 industry superannuation funds, manages $82.7 billion in funds. It opened its eighth global office in Seoul in November 2017.
The following are key comments from Bharadwaj in the interview conducted ahead of the ASK 2018 Real Estate & Infrastructure Summit in Seoul due on Oct. 23:
Q: What do you think is going to happen to infrastructure investment in the coming years? What are the major risks of these asset classes?
“In terms of sectors, we have strong conviction on transport assets, but believe the regulated utility sectors have become more uncertain from a regulatory perspective. We are short power generation given the substantial changes we are seeing in this sector globally, but we would consider renewable opportunities if the policy framework in a particular jurisdiction is robust enough.”
“That said, our core geographies – North America, Western Europe and Australia – remain attractive going forward. … we have been sourcing very attractive core infrastructure deals in other countries such as Mexico, Poland and Turkey in recent years, and expect to see some deal flow from selected geographies in Asia over the next couple of years, following the establishment of an investment team based in our Hong Kong office.”
Q: What’s your view on global economic outlook? How do you think the US Fed’s interest rate hike will change capital flows in global financial market?
“The global economy continues to post solid growth led by the US, however we’d suspect that we are past the peak in the growth cycle. Many developed economies including the Eurozone and Japan have demonstrated this and with concerns around trade wars and emerging market vulnerability, downside risks to the outlook are building.”
“As such the global economy is becoming more desynchronised to the domestic strength of the US economy and the latter will continue to see the Fed hike rates. Markets have largely priced in the Fed’s path of removing policy accommodation therefore capital flows are unlikely to be too much changed in the near term.”
“However, bond yields may back up materially and this could introduce volatility into equity markets as was seen earlier in the year. Similarly, should the yield curve flatten further markets may get concerned for the US growth outlook and capital may shift accordingly.”
Q: In investment perspective, what are your views of Korean market?
“We are keeping an open mind on opportunities in Korea and will look for assets where we can deploy a reasonable amount of capital in a deal (at least US$500 million) alongside high quality operating partners in assets that offer a platform for growth and further equity deployment.”
“Our open ended fund structure is perfectly suited to investing in growth businesses over the long term.”
By Chang Jae Yoo
<Edited by Yeonhee Kim>