The shaky state of debt markets is clouding the outlook for infrastructure finance and trading - a niche that many believed was poised for rapid expansion in 2008.
After bulking up infrastructure finance teams in both Europe and the U.S., banks are taking a breather while they hammer out next year's budgets amid uncertainty about the direction of economies and markets.
Recruiter Lars Glossner at Huxley Associates in New York says two clients recently froze plans to hire infrastructure credit traders. "We'll have to wait three to five weeks down the road" to see how budgets turn out to get a better sense of where the sector is headed, he says.
Infrastructure refers to a broad class of facilities that promote economic activity, from power plants, public telecommunications systems and water purification projects to airports, railroads, toll roads and shipping terminals. Although long established in economic development circles, the word, "infrastructure" has caught fire as an investment concept only in the last few years as more public-sector assets and projects have been turned over to private-sector operators.
Last year's infrastructure financing volume grew more than 30 percent to $212 billion, according to Infrastructure Journal. In July, a separate report by Merrill Lynch estimated that spending on projects in emerging markets alone will reach $1.25 trillion through the end of 2009. China and India are expected to make up about 40 percent of the total. Privatization of toll roads and airports is on the upswing within the U.S. as well.
Both Sides of the Street
From late 2005 through early 2007, both sell-side and buy-side institutions moved aggressively to seize those opportunities. Following the lead of Europe's biggest banks, several bulge-bracket Wall Street houses launched dedicated infrastructure funds last year. Independent hedge funds and private equity firms also moved into this area in recent years.
Many more fund groups are talking about starting their own infrastructure funds, says Steve Yendell, managing consultant at London-based search firm Selby Jennings. Buy-side clients will say, "we'd like you to keep an eye on these skills-sets," he says. Although those inquiries haven't led to actual searches and the prospective employers are not raising capital yet, Yendell says, "it is something that is very much on the horizon of a lot of these funds."
Yendell says the funds' interest is what drove banks' infrastructure searches this year. The favored skill sets emphasize deal-related experience and valuation work. Because it's a relatively new niche, Yendell says banks ask for M&A and/or private equity backgrounds, rather than direct experience with a specific type of infrastructure project. "Following it is one thing, but actually working on a transaction is something different," he explains. He adds that infrastructure finance groups "want to cherry-pick projects" whether in energy, transportation, telecommunications or other sub-sectors.
Glossner, however, says banks also are receptive to candidates with backgrounds in infrastructure or project finance. Besides putting project finance deals together, he says banks trade infrastructure-related debt through their special situations, principal investment, proprietary trading and alternative investment groups.
Current State of the Market
Among openings currently listed on eFC's U.S. site, one calls for an infrastructure project finance associate in New York to help senior team members structure, execute and close deals for various types of infrastructure assets in North America. Michael Page International is advertising two New York-based openings in infrastructure and utilities financing, one at the associate level and one at the analyst level. And Huxley Associates is seeking a project finance and infrastructure credit analyst, for a credit trading group.
However, less-friendly credit conditions are putting a damper on hiring activity in many of these groups for now.
Amid a chill in credit markets, hiring managers who want to add staff are getting pushback from management. "Liquidity is in question," says Glossner. This is happening in other areas of fixed-income as well. It's partly a seasonal issue, because motivating candidates to leave their current employer usually requires an up-front guarantee to cover the full-year bonus they'd be walking away from. Few employers are willing to do that at this stage, Glossner observes. So, "they're speaking to people, but they're pushing hiring decisions back into next year."