Awwal 22, 1432 H/Feb 25, 2011, SPA -- Lazard Asset Management expects a big boost for infrastructure shares as the dam bursts on a reservoir of cash private equity funds are holding to spend on water utilities and other infrastructure operators, according to Reuters. Infrastructure funds, which raise money from institutional investors such as pension funds and insurance firms in order to invest directly and usually take companies private, have to compete fiercely to secure relatively sparse assets. "We conservatively estimate the committed but undrawn equity that has been raised by private equity for infrastructure is about $115 to $120 billion," said Warryn Robertson, a portfolio manager at Lazard Global Listed Infrastructure. "This leads to a 20 to 30 percent premium being paid for almost identical assets by private equity players compared to listed market players," Robertson told Reuters in a telephone interview. This week shares in Britain's sole listed port operator Forth Ports hit a 29-month high on speculation that a consortium of private equity shareholders would revisit their rebuffed 640 million pound takeover approach to the company. Infrastructure stocks, typically unexciting due to their predictable cash flows, can offer significant returns for investors when a deal comes through, Robertson said. Lazard owned shares in telecommunications tower firm Macquarie Communications Infrastructure Group and Australian toll-road operator Intoll before they were bought in the last two years by Canada Pension Plan. UK WATER The British water utility sector has historically attracted private equity investors keen to pay hefty premiums over the publicly listed price for acquisitions, said Robertson, who helps manage $2.4 billion in listed infrastructure assets. "In terms of our scoring sheet of infrastructure investments, some of the companies with the most desirable investment characteristics are in the UK water sector," he said. "We believe they have a very stable demand profile, absolute monopoly assets, inflation protection, gross profit margins of 65 to 70 percent and legislated gearing ratios that prevent them from overleveraging," Robertson said. UK water stocks Northumbrian Water, Severn Trent, Pennon Group and United Utilities have traditionally traded at a premium to their regulated asset base due to persistent M&A speculation. Analysts say the expected rise in UK inflation, from which the water utilities are shielded through their regulated returns, is set to increase their appeal to potential buyers, such as Ontario Teachers' Pension Plan, which owns 27 percent of Northumbrian. "The criteria we look for in our infrastructure assets are typically what the private equity managers or the pension funds want," Robertson said.
