Fund focus: Asia LPs in Morgan Stanley infra push

When Morgan Stanley Infrastructure closed its first fund in 2008, Asia was barely on the radar. The $4 billion vehicle included practically no Asian money at all and reflected the still-primordial state of infrastructure as a global asset class in private equity.

Fast forward nearly a decade and infrastructure funds have grown tremendously in popularity, particularly in the Asia-Pacific region. This has resulted in some strongly diversified LP rosters, surges in dry powder and a general de-risking of the industry. Morgan Stanley's latest fund, North Haven Infrastructure Partners II (NHIP II), illustrated the trend this month when it closed at $5.8 billion, including $2.2 billion in co-investment commitments from some of the larger participants. Major LPs in the fund include two of China's three largest life insurers.

About 40% of NHIP II's capital comes from the broader Asia-Pacific region, although significantly less than this total will be returned to this market in the form of portfolio investment. Roughly half of the money is earmarked for the Americas, with a third set for Europe and the balance to be deployed in Asia. There will be 10-12 investments in total, with a focus on promising projects with dented valuations in the wake of recent equity market volatility.

"We look to invest in core-plus or value-added infrastructure so we can find assets that we can improve and then sell into the strength of the core infrastructure market," says Mark McLean, managing director and head of Asia Pacific at Morgan Stanley Infrastructure. "We're not participating, for example, in the large government auction processes currently ongoing in Australia, as we don't believe we can achieve our target return."

Although most of the fund's Asia-Pacific push will be in Australia, the growing size and sophistication of the region's institutional investors is clearly generating interest in less developed parts of the region. This is evident despite typical risk-wary strategies in the infrastructure space such as NHIP II's remit to concentrate on Organisation for Economic Co-operation and Development (OECD) member countries.

This represents quite a limitation in Asia as there are only four OECD members in the region, Australia, New Zealand, Japan and South Korea. But with all the money gravitating toward infrastructure in the less developed corners of Asia, it may only be a matter of time before more of the global players launch funds focused on this area.

After all, this kind of deep future planning is ingrained in infrastructure investors who tune their schedules to tidal macroeconomic cycles. "We can't just say we're going to buy this and make some changes to it and move on in two years," McLean says. "We have to try and look forward through the cycle and decide how it's going to look in what could be a very different economic environment."

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• Australasia
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• Infrastructure
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