Summer horribilis

In the medical community, the relationship between anxiety and panic is pretty much a straightforward case of cause and effect.

If a patient leads a particularly stressful life – or is under duress due to specific circumstances – he will likely become more anxious. If that state of anxiety persists for a prolonged period of time, the patient will inevitably start having panic attacks – sudden, intense bursts of fear that can cripple a person’s daily functioning.

Considering that infrastructure investing is, at the end of the day, performed by human beings, it was only a matter of time before fund managers raising Euro-denominated infrastructure funds started getting anxious about how the Eurozone’s dramatic summer might affect their fundraising. 

Infrastructure Investor recently spoke with a fund manager currently raising a Euro-denominated fund, who is keen to see how the fundraising rentrée will play out now that August is drawing to a close. 

“What we don’t know yet is how the summer will impact our fundraising, because of the Eurozone crisis,” the fund manager said. “Investors are concerned about the future of the Eurozone, especially limited partners (LPs) in the US and Asia. This is worrying because these LPs don’t need to invest in the Eurozone – they have the possibility to invest elsewhere,” he concluded.

He is right to be concerned. Last summer, it would have been unthinkable to suggest that the Euro and the Eurozone might, despite obvious difficulties, one day cease to exist. But this summer, the unthinkable has become a possibility, mostly because Eurozone leaders have been unable to plot their way out of the sovereign debt crisis hounding some member states.

This raises the very real issue of whether fundraising for Euro-denominated funds might slow down considerably – or even halt – until LPs get some clarity on the future of the Eurozone.  

Another interesting question is when anxiety about the Eurozone’s future will turn into a full-blown panic attack, triggering the famous ‘fight or flight’ response that will send investors running to the hills (if that’s not happening already).

Today, the cost of insuring Greek sovereign debt rose to eye-popping heights, with the spread on five-year credit default swaps increasing to 2,300 basis points. That means it now costs $2.3 million annually to insure $10 million of five-year Greek debt. Or put differently, it means investors have absolutely no confidence in the Eurozone’s ability to get its house in order and prevent Greece from defaulting.

With unprecedented nervousness plaguing the Eurozone, a messy default could be the spark that lights the bonfire. As resilient as infrastructure is as an asset class, it’s doubtful it would emerge intact from the ensuing stampede. Fund managers getting back on the Eurozone fundraising trail would do well to visit their doctors for some anti-anxiety medication.

For more of the key themes in infrastructure fundraising, look out for our fundraising cover story in the September 2011 issue of Infrastructure Investor.