Patrizia Targets Asia’s Trillion-Dollar Infrastructure Funding Gap

German investment giant Patrizia is doubling down on Asia Pacific’s infrastructure sector, where the company sees growing opportunity in the region’s estimated $900 billion annual shortfall in funding for critical assets from solar farms to data centres, according to a senior executive.

In an interview with Mingtiandi, Saji Anantakrishnan, head of infrastructure for Australia and Asia at Patrizia, noted that surging demand and a shortage of capital in the Asia Pacific market have piqued the interest of global investors.

“We think [Asia] is growing exponentially, it continues to need significant capital, and we’re seeing increased demand in terms of infrastructure,” the Sydney-based executive said. “The next 10 to 20 years would be very interesting in the region.”

The comments follow Patrizia’s launch of a flagship fund with Japanese conglomerate Mitsui & Co seeking to raise up to $1 billion to invest in sustainable infrastructure assets in the region, building on the partners’ 15-year history of investing in infrastructure in Asia Pacific.

The first deal under the new vehicle, Patrizia’s largest infrastructure strategy in the region to date, involves a combined solar photovoltaic and battery facility in Australia, with the €57 billion ($62 billion) asset management firm exploring further opportunities including a solar farm in Taiwan and investments in Singapore.

Capital Gap

“Sixty percent of global urbanisation is going to happen in Asia and as those citizens move into cities, there’s going to be increased pressure on existing infrastructure,” said Anantakrishnan. “As everyone knows, existing infrastructure, whether it is energy, water or gas, is already under stress.”

The World Bank estimates that the Asia Pacific region has a $900 billion annual infrastructure funding gap, creating opportunities for private capital as governments alone are unlikely to be able to address the growing supply-demand imbalance for strategic investments in the region’s infrastructure.

Anantakrishnan said Asia Pacific is now gaining more attention from institutional investors as demand for quality infrastructure assets continues to rise in the region, driven by its fast-growing economies, expanding populations and rapid urbanisation.

“What you see when you look at the data is that the majority of institutional capital raised in infrastructure still goes towards North America and Europe and there’s a lack of capital going to Asia,” he said. “There’s a very large gap, there’s a need for more capital, there are more opportunities being created, there’s a stronger deal pipeline here and a really strong value proposition for investors who want exposure to Asia.”

“We know that private capital which is allocated in North America and Europe is now increasingly interested in Asia, we’re starting to see those capital flows change in direction,” he added.

Launched this month with a $110 million first closing, Patrizia and Mistui’s new APAC Sustainable Infrastructure Fund (A-SIF) is backed by the Development Bank of Japan as an anchor investor. The vehicle will target sustainable infrastructure across developed Asia Pacific markets including Australia, Japan, Singapore, South Korea, New Zealand and Taiwan, with a goal of raising between $500 million and $1 billion within 12 months.

Target assets will fall in the energy, digital, social and mobility sectors, including solar and wind farms, battery storage, EV charging stations, data centres, and social infrastructure. The partners will aim to deliver sustainable returns in line with the United Nations’ Sustainable Development Goals.

Accelerated growth

Anantakrishnan told Mingitandi that, as part of the company’s accelerated expansion in Asia Pacific, Patrizia plans to launch a second and third vehicle under the A-SIF series, with the next vehicle likely to launch in two years once the partners finish deploying all the capital in the inaugural fund.

Whereas the current fund has a goal of raising $500 million to $1 billion, Patrizia envisions the second fund as seeking $1 billion to $2 billion and the third fund doubling in size again, Anantakrishnan said. A-SIF is managed by PATRIZIA MBK Fund Management, a joint venture equally owned by Patrizia and Mitsui, which Anantakrishnan said will continue to be the fund manager of the succeeding vehicles.

Anantakrishnan noted that the recently launched fund has a target internal rate of return of 10 to 12 percent. The JV is currently undertaking due diligence to buy a solar asset in Australia from a local developer for around $100 million on behalf of the fund.

In addition to the potential solar farm deal in Taiwan, the venture is in the early stages of exploring two more transactions in Singapore involving the infrastructure components of a waste disposal business and an education provider.

The partners are also looking at a handful of data centres in developed and developing markets across the region, targeting hyperscale facilities, as these typically have anchor tenants with longer term contracts, Anantakrishnan said.

Asian Track Record

Patrizia, which has €57 billion in assets under management globally, aims to double its real estate and infrastructure investments in Asia Pacific by 2027. The company opened an office in Singapore’s central business district last year, setting up a new regional hub to buttress its expansion

A-SIF marks the second APAC-focused infrastructure fund for the Patrizia-Mitsui JV following their emerging market infrastructure fund launched in 2008. Anantakrishnan said the vehicle achieved a gross internal rate of return of over 12 percent and an average cash yield north of 9 percent.

Patrizia is also targeting Japanese apartments, having launched a €1 billion fund in November aimed at acquiring core and value-add multi-family assets across the country’s top cities. Backed by an Asian institutional investor, the vehicle was seeded with four apartment buildings worth JPY 7.5 billion (€52 million).

The company gained a foothold in Japan in 2019 when it acquired Tokyo-based real estate advisory and asset management firm Kenzo Capital Corp.