KKR’s recently announced acquisition of John Liang offers a snapshot into investor interest in infrastructure. The $2.8 billion deal gives the financial sponsor access to bets on a transportation and renewables-focused portfolio in a global portfolio. Let’s take a look at what John Liang’s exposure could mean for investor interest going forward.
The deal comes months after KKR was reported to seek $12 billion from investors for its newest infrastructure fund, a massive target given its previous raise closer to $7 billion. KKR had over $11 billion in commitments to its first three Global Infrastructure Investors funds as of the end of the first quarter, with much of them already invested.
A look at where the sponsor is choosing to deploy funds could be indicative of future market activity. So why John Liang?
The UK-based infrastructure investor’s portfolio is concentrated in transportation, with rail and rolling stock constituting 34 percent of its assets compared to 19 percent of roads and other transit assets as of year end 2019. Environmental brought up the largest component of the remainder of assets at 33 percent of the portfolio. The target looks like a bet on renewed transit investment, and a play on renewables.
While the target also originates investments, the current portfolio is largely tilted toward secondary holdings. The vast majority of the company’s investments were already operational at 72% of John Liang’s portfolio, with the remainder under construction as of March 2021. Of the operational projects, 44 percent were in Australia, followed by 38 percent in North America, and 18 percent in Europe. That could suggest that KKR sees further upside in running and/or disposing of current projects.
Some additional color on the deal can be found in the KKR team’s approach, which it professes to be sector agnostic. Instead of taking a long view on a particular sector within infrastructure, the KKR team identifies an attractive risk profile first, wrote Raj Agrawal, global head of infrastructure, in a note a few years back: “Our approach has been to make investments where the contracted profile, the regulatory profile, and/or the competitive positioning leads us to believe something about that asset gives us very high visibility that we’re going to get our capital back and some base return.”
All in, the deal looks like a bet that transportation and renewables valuations will surge when John Liang’s portfolio is ready for further disposals. And that exposure across Asia-Pacific and Europe will pay off.
