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With high-profitability and security, “Infra funds” are gaining popularity

With high-profitability and security, “Infra funds” are gaining popularity

Posted March. 08, 2007 06:42,   


Investing in infrastructure such as highways and airports-

“Do you have any idea what infrastructure fund means?”

Macquarie Bank, Australia’s largest investment bank, has established a formula of “Macquarie equals infrastructure fund” in the global investment banking market. The bank started business in 1969 with just three employees. However, despite its short history, it is now leading the world’s investment banking industry by focusing on infrastructure funds.

Infrastructure fund refers to the funds invested in social overhead capital (SOC), in cooperation with governments, public institutions and large corporations around the world.

By investing in the building of infrastructure, such as the construction of Heathrow Airport, London, Britain, Macquarie Bank records increased annual profits of seven to ten percent. After advancing into Korea in 1999, the bank has changed Korea’s financial market, where prior to their arrival, infrastructure funds were almost non-existent.

However, as domestic asset management companies are making inroads one after another into the infra fund market, which in the past was dominated by Macquarie Bank, the funds are now drawing great attention.

Stable profits from long term investment of ten to 20 years-

Korea Infrastructure Investment Asset Management (KIAMCO), a subsidiary of Korea Development Bank, invested 80 billion won in the construction of the highway linking Seoul to Yongin, and 40 billion won in the building of a privately financed container port in Pyeongtaek.

In December of last year, by raising capital from institutional investors such as Samsung Life Insurance, KIAMCO also participated in a private financing for landfill gas-to-energy projects in metropolitan areas.

In the project, when a generator using landfill gas is built, KIAMCO will have the right to run the generator for 11 years, and once the investment cost is fully recouped, the facility will be owned by the nation.

The Balhae Infra Fund of KB Asset Management and the Emerging Infrastructure Fund of Darby & Hana Infra Asset Management are also investing in both light-rail lines linking Busan to Gimhae and the Seoul belt highway.

Since it takes a long time to build SOC, infra funds should be held for ten to 20 years as a long-term investment. Because of this, infra funds provide stable long-term profits.

Macquarie Korea Infrastructure Fund (MKIF) was simultaneously listed in Korea and Britain last year. While MKIF is receiving open placement, domestic asset management companies’ infra funds are being privately offered to institutional investors.

Macquarie Group says, “Investment in Korea will be increased from this year”-

At a press conference in downtown Seoul, on March 7, Allan Moss, CEO of Macquarie Group, said, “From this year, Macquarie Group will greatly expand its investment in Korea.”

He also said, “Since Korea has world-class technologies in infrastructure, including telecommunications and harbor ports, the long-term vision for the country is bright.”

Mr. Moss also added that in a situation where the role of government in the public sector is diminishing around the world, infra funds are not a choice but a must, because through them, a long-term monopoly in the construction and operation of SOC is quite possible. Recently, Macquarie also donated 2 billion won to KAIST, the largest donation in the company’s history.

Then what is the strategy of domestic intra funds in the face of Macquarie’s strong offensive?

KIAMCO CEO Ban Ki-roh said, “In two or three years, infra funds open to public subscription will be put on the market. However, the current laws limit private investment by allowing only 44 items including roads and ports to be invested in by infra funds and excluding various comprehensive development projects of local autonomous governments.”

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