The results are in, and during the first quarter of the 21st century by far the biggest beneficiary has been the Asia-Pacific region. Asia specifically has grown dramatically, in head count and economic might, with huge upgrades in infrastructure, urbanization and a burgeoning middle class. This has lifted an astounding 1.1 billion people out of poverty, arguably the greatest human achievement in recorded history, and has been achieved through cheap and abundant energy, increases in crop yields, progress in sanitation, healthcare and medicine, and above all, international trade.
Within Asia, China and its manufacturing base has been the outsized driver and winner, responsible for powering this century’s Asian economic miracle through regional trickle-down growth, catapulting itself to middle-income country status and achieving the world’s second largest economy. According to Goldman Sachs, a US investment bank, China will overtake the US to become the world’s largest economy by 2035, with India knocking the US into third position in 2074. China’s international trade dominates the region, being the single largest trading partner for dozens of countries globally and locally, including Australia, New Zealand, Japan, South Korea, Taiwan, Indonesia, Vietnam, Malaysia, Thailand and many more. To nurture the conditions for this trade to flourish China’s leaders retained modest, internationally competitive tax rates. In fact, China’s total Corporate tax rate of 25% is lower than many other G20 countries, including Australia (30%), Japan (30%), Germany (30%) and Canada (28%). Moreover, the highest Personal tax rate in China is 45%, on par with fellow G20 members Australia, France, Germany, South Korea, South Africa and the UK, and considerably lower than Japan (55%), Sweden (52%), Netherlands (49.5%) and others.
As a result of this century’s broad economic growth, demand for Infrastructure has been quite literally ground-breaking. The ADB (Asian Development Bank), a Japan-based development bank, stated in 2021 the Asia-Pacific region needed to invest US$2.2 trillion per year from 2020 to 2030 if the region is to maintain its growth momentum, eradicate poverty, and respond to climate change. Even without climate change mitigation and adaptation costs, US$20 trillion would be needed, or US$2 trillion per year to 2030. The investment is required in power, transport, telecommunications, digitalization, and utilities such as water treatment, waste treatment and sanitation. Similarly, Mr Jin Liqun, President of AIIB (Asian Infrastructure Investment Bank), a China-based development bank, stated “Asia needs at least US$1 trillion per year [in infrastructure investment], every year for 10 years”.
Infrastructure can be an enormous economic multiplier, providing dividends for an economy long after the initial project is finished; new roads can slash delivery time for goods, lowering costs for consumers and speeding through the exports that fuel growth, while new seaports can connect an economy to the world, increasing markets, competitiveness and raising national standards of living. For investors, private-markets for infrastructure can be a highly attractive option for those seeking stable, long-term returns due to infrastructure projects typically having long lifespans and predictable revenue streams over extended periods. This may align particularly well with longer-term strategies like pension funds, retirement funds or endowments. Multiple infrastructure assets in sectors such as utilities and transportation are essential services in continuous demand, which can offer stability regardless of broader economic conditions and even during economic downturns. Moreover, infrastructure contracting often includes provisions that tie revenues to inflation indexing, or mechanisms for increasing charges in line with inflation, possibly producing greater real value during periods of higher inflation and rising consumer prices. Additionally, the infrastructure sector has had little correlation with other asset classes such as Stocks, Bonds or Commodities, potentially delivering aggregate portfolio diversification benefits like lower overall risk and volatility. Infrastructure assets can also offer attractive yields higher than those available from traditional longer term or fixed-income products. Over time, these real assets may also appreciate in value if they are well managed and located in high growth regions. Private-market assets like infrastructure come under the heading of Alternative Investments, which are not public securities or products instantly tradable in exchanges online and are not as liquid. This ‘liquidity premium’ contributes where private infrastructure yields exceed other public, market-based products.
Private-markets encompassing infrastructure have become increasingly popular with some of the world’s largest investors, including sovereign wealth funds from Singapore, Saudi Arabia, Abu Dhabi and Norway; pension funds like Japan’s GPIF, Australia’s AustralianSuper and Canada’s OTPP; and international insurers and reinsurers. Asset management firms have responded to this demand by creating pooled infrastructure products containing mixed holdings, including Managed Funds and Limited Partner structures. However, these products are often limited to institutions or self-certified, sophisticated or high-net worth investors. Fees traditionally consist of an annual management charge between 1%-2%, plus 10%-20% annual performance fees on profits, above previous watermarks, and after the product originator deducts their applicable costs and expenses.
“Largest Australia Pension Fund Says Time Ripe for Private Assets”
A 2024 article on Bloomberg, a financial data provider, reported Australia’s largest pension fund wants to put more money into private-market investments and will further boost its exposure to overseas assets. “Now is a better time to put money into private markets than two or three years ago, when valuations were more expensive and deals were quite scarce” AustralianSuper Chief Investment Officer Mark Delaney said on Bloomberg TV. Another 2024 Bloomberg article reported ART (Australian Retirement Trust), a pensions manager with more than A$300 billion under management, wants to lift the allocation to unlisted property and infrastructure assets in its main investment option over the next two years, and Chief Investment Officer Damian Graham said whilst it had been prioritizing equities over unlisted assets, private investments now held more long-term appeal.
Smaller companies are also taking up direct investments within the infrastructure sector under varying fee schedules. Mr Christian Lindberg, Managing Director of Hong Kong-based Talisman Infrastructure Partners, an infrastructure consultancy and owner-operator, said he’s fervently bullish on private-markets especially in Asian infrastructure, and that he believes direct investments provide superior transparency and returns for investors, when compared to aggregated third-party products. He explained, “If I put my investing hat on and we zoom out for a moment, the Asia-Pacific region represents around 50% of humanity and 50% of global GDP. Most of these people are based in just two countries, India and China, however in economic terms China’s GDP is still larger than the total from the rest of Asia combined, India, Japan, Indonesia, Korea, the whole lot together. Therefore global investors wanting a simply diversified investment portfolio could allocate around 50% of their portfolio to Asia-Pacific, however if we then take into consideration the far higher rates of economic growth in Asia, it’s a compelling argument for your portfolio to be overweight Asia, to contain more than 50%, to capitalize on the faster economic prospects in the region, and particularly at its core in China.” He continued, “In our case, we’ve been based in Hong Kong many years and it’s always benefitted from its unique status as the international legal and financial adaptor that connects China to the systems used in the rest of the world. It’s already today’s largest financial center, by many metrics, and being based here we enjoy numerous advantages like extraordinarily broad access to deep and well established finance and capital markets, employing the global business standard of English common law, numerous tax advantages as a Duty-Free zone, and we’re one of only four official offshore clearing centers worldwide for USD transactions, as designated by the US government. Now in terms of corporate profits and dividends, in 2024 China had roughly 17% of the worlds populace and Chinese companies pay approximately 16% of global corporate dividends, therefore a diversified equal-weight income portfolio should probably allocate 16% of capital to Chinese equities, or potentially a greater allocation of portfolio capital if China’s faster economic growth is taken into account. By comparison, with around 18% of the planets people, Indian corporate payouts are estimated to range between just 1%-2% at the moment, so would suggest a more modest 1%-2% potential portfolio exposure. And the Chinese aren’t just manufacturing jeans or widgets anymore, they lead the world in patent registrations and innovation in a number of fields.”
In fact, according to the ASPI (Australian Strategic Policy Institute) Critical Tech Tracker index, a unique dataset that tracks 64 technologies foundational for our economies, societies, defense, energy production, health and climate security by focusing on the top 10% of the most highly cited research publications over the past 21 years, China is now the lead country in 57 of 64 technologies.
Diversification Is the Only Free Lunch
Mr Lindberg lays out his firms’ latest mainland joint-venture partnership, in collaboration with Cement producer Henan Cement Stone Group, to develop and operate a mid-sized limestone quarry project in H2 2025. His Operations Director at Talisman Infrastructure Partners Mr Anton Botha expanded, “At Talisman our bespoke, Westernized approach – and what I mean is specifically targeting the operational efficiencies and sustainability KPIs on site – I think it’s all very well received, fully taken on board. And for us, securing a joint-venture with Henan Cement Stone gives us exceptional access to a proven producing asset in a fundamental sector. It’s a classic win-win situation, or a pluralistic benefits situation as they say here. They get a badge of honor for bringing in foreign partners, helping fulfil the national drive for continued western engagements and we get a modest stake in a great project that we’re confident will lead to further opportunities to diversify our partnerships in future. As we like to say, anything built is built of cement”. Mr Lindberg then continued, “China produces approximately 2 billion tons of cement each year, contributing approximately 2% of global CO2 emissions, so the Central Government has implemented several policies to reduce these emissions. Upstream initiatives include closing outdated, inefficient facilities and adopting new technologies, such as advanced material mixes and operational improvements at sites like the Jade Valley joint-venture”. He added, “Access to high-quality reserves like ours helps, and so does being strategically located in the middle of a huge infrastructure market. The big systemic reductions mandated in CO2 emissions throughout the cement supply chain are well on track in China. The country leads in sustainable global patent applications for low-emission cement and clinker tech, they’re setting records, and we’re proud to contribute in reducing the industry’s greenhouse gas emissions while creating jobs, and boosting the economy, productivity and infrastructure capacity.”
Their joint-venture enjoys several noted benefits: An established 23 year history in the Jade Valley limestone mine concessions, sizeable components of the vast Jiu Ding quarry complex of Henan province; Rigorous multi-disciplinary evaluations determine the project will produce 39m tons of net material over a 10 year period; Leveraging local policy incentives on fuel and labor to compress costs, and deploying state-of-the-art production initiatives and tech, the project will operate at some of the most competitive levels nationwide. “With emerging needs for critical infrastructure all over Asia and Greater China planned out to 2050 we strongly believe appeal for our roster of essential, tangible businesses producing physical transactions in predictable non-cyclical industries will only increase in popularity, leading our asset values to rise in tandem.” added Mr Lindberg.
ABOUT:
Talisman Infrastructure Partners has grown its advisory practice to become a proprietary owner and operator of infrastructure assets throughout Asia-Pacific. Our successful track record in the region is complimented by a pragmatic approach to applicable UN Sustainability Development Goal implementation. We’re proud to deliver local partners dynamic expertise, insights and optimization for the prevailing strategies of today’s infrastructure market.
Company Name: Talisman Infrastructure Partners
Location: Kwun Tong, Hong Kong
Website: https://www.talismaninfrastructure.com
Public Relations: Mrs. Fiona Chen-Taylor