As cash-strapped governments around the region turn to public-private partnerships (PPPs), pension funds are expected to be among the partners they will likely look to as sources of capital for long-term infrastructure development. That point was made by investors, financiers and experts speaking on a panel at the third annual CIBC FirstCaribbean International Bank Infrastructure Conference last week in Montego Bay, Jamaica.
The panelists noted that pension funds are increasingly seeking investments in the region, given that the majority of funds invested in infrastructure development is currently being channeled to Australia and Europe, where there are large projects which investors consider worthy of the time and ancillary costs involved in getting major projects implemented. It was also noted that investors are looking for at least 20 percent return on equity. That number - 20 percent - was of great interest to both government and commercial observers, who perhaps might have thought that expectations for returns on equity might be different.
Rajeev Gopaul, IFC representative for Jamaica, argued that "predatory and legal issues" can also be a challenge for Caribbean projects. He said, "it becomes more complex when international laws are applicable due to the composition of the investor and they prefer to price in international currencies as opposed to regional currencies that may be prone to exchange fluctuations"
In this regard, swap protection also becomes essential to protect against the risk of foreign exchange fluctuations. It was noted that, in the region, large projects are still being undertaken for the most part by overseas contractors who work with locals to implement them. Such projects can have very "aggressive returns" the panel concluded.
The panel was on the topic "Caribbean Infrastructure as an Asset Class: International and regional investors' perspectives". Speakers included Raymond Campbell, partner, KPMG Advisory; Andrew Lee, managing director and head of private placements, CIBC World Markets; Lenny Mazlish, Cigna Investment Management; Douglas Hewson, partner, Portland Private Equity; and David Clee, managing director of corporate credit and structured finance, CIBC FirstCaribbean International Bank.
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