As Greece Dumps Infrastructure, Do Institutional Investors Stand to Gain?

(June 20, 2011) — As Greece prepares to sell off its state assets — including airports, highways, and state-owned companies as well as banks, real estate and gaming licenses — to raise funds, many in the industry perceive the sale as an opportunity for  infrastructure-hungry institutional investors. 

However, Cynthia Steer, Managing Director of Investment Strategy and Consulting at Russell Investments, believes it’s too early to tell, labeling investor sentiment toward the infrastructure sell off as neutral. “Investors likely view the sale as neutral because they don’t know the implications, as it’s still too early to be determined. Likely buyers still don’t know the price, or any specifics,” she tells aiCIO. “In Greece’s case, they’ll probably be unable to sell many of their assets,” she adds.

This weekend, the European Union approved a second bailout for Greece in an effort to prevent the country’s economic crisis from spreading to the rest of Europe. The massive infrastructure sale reflects rising  concerns over Europe’s currency, the euro.  

Investment consultants, including Steer, maintain that in assessing the sovereign-debt crisis, one should look beyond Europe. Steer asserts that Greece’s sale of assets represents a cautionary tale, signaling a changing view on fiscal responsibility globally. “As we look at Greece and other countries worldwide, everyone is accountable for being fiscally responsible. My feeling is that the sovereign risk issue has intensified and clarified. People are focusing on this issue more broadly. Implications of sovereign risk and how it will impact institutional investors in individual asset classes are still being debated, and they’re higher up on the radar screen.”

Riding on fears of contagion, the International Monetary Fund has said Greece is well-positioned to avoid the restructuring of its debt, yet it has simultaneously warned that Europe’s debt crisis could still spread to core euro zone countries and the emerging economies of eastern Europe.  Meanwhile, Former Federal Reserve Chairman Alan Greenspan declared in a June 16 interview that a Greek default is “almost certain” and could precipitate another US recession.

“Contagion to the core euro area, and then onwards to emerging Europe, remains a tangible downside risk,” IMF said in its latest economic report — released last month — on Europe. The global lender noted that it would provide additional monetary aid to Greece if needed, yet, contrasting with Greenspan, he indicated that the country is likely headed in the right direction. Calming fears over the sovereign debt crisis in Europe, Antonio Borges, director of the IMF’s European Department, said that the IMF does not currently anticipate the chance of sovereign default in Europe, yet also warned he doesn’t believe in “a miraculous restructuring solution.”

According to the IMF, substantial measures have already been put in place in the euro area to overcome the crisis. Nationally, new policies are being implemented to bolster confidence. Regionally, the governance framework is being revamped. “Important actions are still required to deal decisively with weak banks across Europe’s advanced economies, and to follow through with implementing the EU-wide reforms that have been agreed in principle,” the IMF noted.

Click here to see a video of Russell Investments’ Cynthia Steer focusing on the evolution of country-focused risk management, deflation and inflation in portfolios, and the monetary policy trilemma.