Killing it like a hooker in Hong Kong

Unreasonable Investment Expectations (I)

I have a friend who just joined the newly set up Asian division of an international investment firm. So I went out to lunch with him to figure out what they want to do. Let’s call my friend Pa.

Me: So what sectors are you guys looking at?

Pa: Infrastructure, pan Asia.

Me: Ahh, so developing stuff, greenfield power plants and all?

Pa: Nope, we’re only doing developed assets. No greenfield.

Me: What’s your return hurdle?

Pa: Mid to high teens.

Me: Ahh, and are you taking small stakes?

Pa: Nope, we want majority stakes in these firms.

Me: Ok which countries in Asia again?

Pa: Japan, Korea, Taiwan, Singapore. No India, no Indonesia. China is a maybe.

Wow, I mean wow. I was sitting there thinking, I wish I could find someone willing to give me a fixed deposit with high teens interest. I mean wtf? Have you forgotten that there is a relationship between risk and return expectations?

It’s funds like these that litter the Asian infrastructure scene now. These idiots went out and did fundraising making all these promises, and then sit in Singapore and Hong Kong rejecting deal after deal after deal. They complain about dealflow, and take their management fees off the top.

See these guys were all setup to emulate Macquarie, who in the pre crisis days played this game better than anyone. Lever, relever, management fees, listing at IPO, more management fees.

But those days are long gone. Anyone who owns infrastructure with mid teens equity cash flows is sitting on it like being glued to your seat during a Jenna Jameson money shot.

So you want mid teens infra returns, I have one word for you pal. Develop. Another word being Greenfield.

I met a guy in India last year, who bought a developed airport, in a non-competitive negotiated bidding process. If all went well and he got reasonable tariff increases, he would get 12%.

There is a direct parallel between these infra funds, and the venture capital funds left over from the Internet bubble era. Both raised money based on bubble expectations, and then proceeded to invest when those expectations were gone. It’s taken over 10 years, but it looks like finally over the next 2-3 years, those venture funds will die out. So I hope all those investors in infra funds are prepared for a long wait to see nothing much come of their great expectations.

(Yes and I did throw in Jenna Jameson in there to see how many hits I can get from people searching for “Jenna Jameson infrastructure”

March 9, 2010 - Posted by | Uncategorized | , , , ,

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