Emerging Markets Partnership Investing in Infrastructure Assets The New Funds in The Spotlight Abu Chowdhury Emerging Markets Partnership, Bahrain

Emerging Markets Partnership EMP Global Formed in June 1992 in Washington D.C. Offices in London, Hong Kong, Bahrain, Johannesburg, Abidjan and Brunei Darussalam Leading specialist in worldwide direct investment in infrastructure Principal adviser for US$6.9 billion of private equity funds for infrastructure US$3.1 billion returned to investors Sourced, structured and closed 100+ investments in over 50 countries EMP Middle East (Dubai) to be formed to manage the Regional Energy Fund

Emerging Markets Partnership EMP Global AIG* Asian Infrastructure Fund I US$1.09 billion (1994) AIG-GE Capital Latin American FundUS$1.01 billion (1996) AIG Asian Infrastructure Fund IIUS$1.67 billion (1997) AIG Emerging Europe Infrastructure Fund US$0.55 billion (2000) AIG African Infrastructure Fund US$0.42 billion (2001) IDB Infrastructure FundUS$0.93 billion (2002) Emerging Europe Convergence Fund IIUS$0.78 billion (2006) EMP Africa Fund II US$0.39 billion (2006) US$6.84 billion Funds in Progress EMP Energy FundUS$1.0 billion * American International Group Funds Under Management

Emerging Markets Partnership Infrastructure As An Asset Class Infrastructure assets such as railways, roads, ports, utilities etc. provide essential services, which drives the growth and development of an economy. Characteristics: –Monopoly asset status –Captive customer base –High operating margins –Low volatility of cash flows

Emerging Markets Partnership Infrastructure As An Asset Class Drivers: –Public sector can’t afford expansion, renewal and new project developments without increased direct taxation –Private sector asset owning companies receiving increased pressure to return to core activities. –Institutional demand for long term assets to match liabilities

Emerging Markets Partnership Types of Infrastructure Assets Social Infrastructure Regulated Assets User Demand Assets Competitive Assets Courts Hospitals Schools Police and Army Transmission Assets Distribution Assets Water and Sewerage Road Rail Airports Certain Communication Infrastructure Certain Power Generation Energy Trading High Risk

Emerging Markets Partnership Why Do Investors Like Infrastructure as an asset class? Predictable earnings and cash flow via regulation and/or long-term contracts; Monopoly characteristics; Attractive yield and growth; Low volatility and Low correlation of returns versus other asset classes

Emerging Markets Partnership Investment Risks in Infrastructure Asset specificCapital intensive PoliticalRegulatory changes EconomicCurrency exposure SocialCorruption TransactionalSponsor LegalRule and Law EnvironmentalNatural Disasters

Emerging Markets Partnership Global Infrastructure Demand Global infrastructure investment needs: –US$30 trillion for transport, energy, water and communications infrastructure by –Further US$770 billion per annum is required to provide clean water. –While around US$16 trillion is required for global energy production, transmission and distribution between 2001 and 2030.

Emerging Markets Partnership Global Infrastructure Activities Between 2003 and 2009, about US$ 90 billion was spent in European countries. Since 2004 investment flows to infrastructure projects with private participation in developing countries grew overall by 12% to US$ 64 billion.

Emerging Markets Partnership Infrastructure Investment Vehicles Primarily three types: –Infrastructure and utility companies –Unlisted infrastructure funds –Listed infrastructure funds Globally, there are more than 350 listed infrastructure companies representing 7% of world market capitalization.

Emerging Markets Partnership An Australian Example The rapid growth of listings:

Emerging Markets Partnership Listed Infrastructure Funds A Few Examples: –Macquarie Infrastructure Group –HSBC Infrastructure Company

Emerging Markets Partnership Unlisted Infrastructure Funds A Few Examples: –AIG-EMP Asia Infrastructure Fund –Macquarie European Infrastructure Fund –IDB Infrastructure Fund

Emerging Markets Partnership Comparative Risk Return Profile Cash Fixed Interest Real Estate and Infrastructure Ownership Listed Equities Private Equity, Hedge Funds, Infrastructure Development Return Risk

Emerging Markets Partnership Infrastructure Vs Other Assets Classes Fixed IncomeReal EstateInfrastructure Private Equity Regular return component Inflation hedge Emphasis on cash-flow Low risk profile Tangible asset / right of use Long duration Good diversification potential Stable, often monopolistic High entrance barriers High Income return Capital intensive Due diligence process Active operative Management

Emerging Markets Partnership Infrastructure Vs Real Estate Despite there similarities (in capital outlay, operating cost, low beta and interest rate sensitivity) the differences are significant: –Infrastructure has monopoly-like characteristics. –Infrastructure has more predictable cash flows and lower risk. –Some infrastructure assets, such as tollroads, provide real returns. –Infrastructure is less mature, not as well understood and, consequently, more likely to be inefficiently priced.

Emerging Markets Partnership Return Expectations within Infrastructure Sector AssetExpected Return Rail6 - 10% + Roads % Airports % Water/Wastewater % Distribution/Transmission % Seaports15% + Average expected return6 - 15% + Source: Booz Allen Hamilton, Infrastructure Market, Interview Input, July 2006

Emerging Markets Partnership Advantages of Listed Infrastructure Funds Equity market linked volatility is generally short-term High distribution predictability Real growth (CPI+) Ability to match long-term pension liability profile

Emerging Markets Partnership Global Infrastructure Markets Emerging Czech Republic Poland Hungary Mexico Baltics China Latin America Developing US South Europe Canada Germany France Japan Nordic Countries Mature Australia UK Ireland

Emerging Markets Partnership Globalization of the Infrastructure Market Global Comparisons Duration matching Diversification Listed Equity Managers looking for value

Emerging Markets Partnership Allocations to Infrastructure Source: Greenwich Associates; RREEF