Afores Warm to Infrastructure, Despite Risk

Infrastructure may present an attractive opportunity for conservative investors like Afores, say Mexican market participants. “Risks are unavoidable in any business,” says Juan Antonio García-Gayou Facha, CFO at ICA Infraestructura. “The key is knowing how to mitigate them.” Indeed, risk mitigation is a chief concern among both investors and concessionaires. One potential solution championed by Miguel Martinez, director of project evaluation and financial structuring at IDEAL, is for infrastructure projects to be funded first by development, commercial and multilateral banks during the construction phase. Once project construction is complete, and potential stumbling blocks – such as environmental, social, and usage rights – have been surmounted, pension funds can participate in the operating phase. “The majority of our investors, about 66%, are pension funds,” says Nick O’Neil, COO of Macquarie Infrastructure’s Mexico fund. “Our clients have long-term liabilities” which dovetails nicely with the long-term, and often highly predictable, nature of infrastructure revenues, he adds. Sergio Méndez Centeno, Investment Director for Afore XXI, agrees. “We believe these are very important investments for us.” For Afores, infrastructure still represents a relatively new asset class. While participation in the sector has increased in recent years, investment levels remain far from ideal, according to Martinez. O’Neil says Macquarie mitigates risk for its investors by virtue of its structure as a fund, which aggregates multiple projects, reducing the likelihood of major losses. Macquarie has raised a MXP5bn fund to invest in the country’s upcoming projects, and opened a local office last year. However, the legal framework for project agreements, including matters such as minimum return guarantees, remain a area of particular concern for investors. “All players have to feel comfortable,” says Méndez, particularly when it comes to ensuring that capital costs and investment retur