The Journal The Authority on Global Business in Japan

The investment landscape is being continuously transformed by global developments and economic change. The topic was addressed by Peter D. Raymond, global leader, Capital Projects and Infrastructure at PricewaterhouseCoopers (PwC), who spoke to members of the American Chamber of Commerce in Japan (ACCJ) on January 17 at Tokyo American Club as part of a series of events hosted by the ACCJ Alternative Investments Subcommittee.

In his presentation, “Trends in Infrastructure Finance,” Raymond discussed infrastructure capital, investment opportunities, investors, and the priorities of policymakers. In particular, he sought to explain themes that PwC has identified as guiding infrastructure trends globally.

CLEAR DIRECTION
“The returns on investment in infrastructure as an asset class have been higher than normal returns on many other asset classes in the market,” he said, and investors are increasing their allocations to infrastructure as a result. This is leading to higher valuations and a divergence from traditional passive investment approaches for institutional investors. He named Australia and Canada as the two countries that are leading the way and “getting invested in ways that are pretty innovative in the marketplace.”

Raymond highlighted a strong move away from the Organisation for Economic Co-operation and Development community and brown-field investments—where projects with clear revenue streams that are already built can be bought into or just updated—as ways investors are diversifying.

Of the move away from brown-field, he explained that green-field investment projects involve development risk and construction risks. However, many are moving into green-field investments.

He highlighted a transaction in which an infrastructure fund, which had limited places to invest its capital, decided to buy laundromats and classify this as an infrastructure asset. “It just shows you how creative people are getting as they seek to place their capital to get the returns they are looking for,” Raymond laughed.

CHANGING POLITICAL AIMS
While governments struggle to find ways to stimulate their economies—and are running out of monetary tools to do so—they are beginning to turn to new fiscal stimulus measures.
It is hoped, Raymond said, that there will be a move towards a combination of infrastructure investment programs driven by governments, combined with the available capital in the marketplace.

“There are a number of sectors that need significant investment in the United States,” Raymond explained, listing transportation infrastructure, clean water, energy, telecommunications, and security infrastructure.

He highlighted the desire of the administration of US President Donald Trump to refocus investment back into the US, instead of investment capital and interest leaving the country. The way this will be done is through tax incentives, public–private partnerships, and streamlining the regulatory process, which is notoriously long and complex.

FUTURE INVESTMENT
Raymond also spoke on some of the more prominent trends shaping the global economy and infrastructure investment, such as social changes and demographic shifts, which impact the kinds of infrastructure being built.

He noted an economic power shift, referring to Asia as “the rising star in terms of economic power around the world, and this is particularly the case for infrastructure,” and also spoke about how the younger generation’s preference for a more urban environment is driving infrastructure spending in these spaces.

The Internet of Things was cited as a new source of disruption as technology creates “a significant increase in efficiency and effectiveness.” However, this means models that have worked for the past 50 or 60 years no longer operate in the same way, he said.

Governments are looking at “how to optimize their portfolio of limited capital to achieve the highest returns—both economic and social. Ultimately there has to be a move from austerity measures to stimulate the economy, and companies and countries are starting to look towards infrastructure.

Maxine Cheyney is a staff writer at The Journal.