U.S. and Canadian plans to spend more than $1.1-trillion (U.S.) on infrastructure are unlikely to be lucrative enough to attract big global investors, according to one of the world's biggest funds in the sector.
U.S. President Donald Trump and Canadian Prime Minister Justin Trudeau have both discussed plans to use infrastructure banks to attract private capital and help offset the cost of funding public projects such as roads, bridges and hospitals.
The banks would be part of $1-trillion promised by Mr. Trump and $180-billion (Canadian) by Mr. Trudeau for infrastructure in the coming years.
The amount of red tape involved, modest equity required and small returns investors will see from the sort of public-private partnerships being proposed will act as a deterrent for the world's largest investors, said Sam Pollock, head of Brookfield Asset Management Inc.'s infrastructure group, which has about $60-billion (U.S.) under management.
"What they're mostly focused on so far is the mix of public and private capital – really creating an engine for PPPs and bringing down the cost of capital," Mr. Pollock said.
"That's great for the government in trying to fund things, and I understand why they're doing that, but it's less of a fit for us."
In Mr. Trump's infrastructure plan, for example, there's been talk of high leverage and tax credits that will make the actual equity commitment quite small, Mr. Pollock said. While that makes sense from a government perspective, the returns would likely be too small for big investors such as Brookfield, said Mr. Pollock, who's also chief executive officer of Brookfield Infrastructure Partners.
On the other hand, there would be a "feeding frenzy" of interest if the Canadian government decides to push ahead with plans to sell off the country's airports, Mr. Pollock said. The Trudeau government said in September it hired Credit Suisse Group AG to look at the benefits of privatizing the country's eight largest airports, including in Toronto, Vancouver, Montreal, Ottawa and elsewhere.
Brookfield Infrastructure Partners manages assets from utilities, transport and energy to sustainable resources. It isn't the only sizable investor that wants to see projects of scale come to market in U.S. and Canadian infrastructure plans.
Mark Machin, CEO of Canada Pension Plan Investment Board, the country's largest pension fund manager, said last year his fund typically looks for infrastructure investments of at least $500-million (Canadian). Although big investors such as Brookfield, CPPIB and others have done some work in PPPs and developed some infrastructure projects, they prefer buying mature ones.
Australia attempted to address this situation with its asset-recycling program. Under the program, the federal government committed 15 per cent of the sale price of infrastructure assets to fund new projects as an incentive for state and municipal governments to put their assets up for sale.
Mr. Pollock said while there is still a lot of interest in investing in such places as Canada and the United States, there's generally more upside elsewhere.
"We'll compare what we can do in a European or North American context with the returns we can invest at in the same business, and taking a little more regulatory or country risk," he said, pointing to places such as Brazil. "Our sandbox is the world."
In September, Brookfield led a group to acquire a majority stake in a natural-gas distribution business from Petrobras for $5.2-billion (U.S.). It's finding similar opportunities in India, where competition in the mobile telecommunication sector has led to several tower assets coming to market. Brookfield agreed to buy the mobile-tower business of Reliance Communications Ltd. for about $1.65-billion.
At the same time, Brookfield is looking at building infrastructure teams in South Korea, Japan and possibly even China to explore infrastructure opportunities in Asia.
Mr. Trump's protectionist measures may also create an opportunity in Mexico as investors flee the country, Mr. Pollock said. Brookfield's bread and butter remains carve-outs from big industrial companies that need capital.
"We are capital providers," Mr. Pollock said. "We look around the world at who needs capital and who doesn't have access to it in a plentiful way."