Alinda: ‘Beware experts bearing economic prognoses’

Alinda Capital's managing partner Chris Beale explains why a potential market correction doesn't concern him and outlines his firm's strategy and worldview of the infrastructure space.

This article is sponsored by Alinda Capital Partners.

Q: In the current investment environment, the debate around infrastructure’s expanding boundaries has been heating up. Alinda seems to be comfortable with non-traditional assets, such as CVO Holding Co. and Kelling Group. How do these fit into your infrastructure strategy?

CB: I wouldn’t characterise our investments as non-traditional. All of our investments have strong fundamental infrastructure characteristics underpinned by sustainable long-term operational cash flows. This allows us to generate a healthy cash yield for our investors.

Our strategy is to seek exposure to certain infrastructure sectors in a smart way, protecting our downside. Through CVO we have exposure to transportation infrastructure via the US trucking industry, and not just exposure to one road but to trucks on roads in 43 states. Under contract with HELP, CVO manages proprietary technology for trucks to bypass weigh stations and toll payment services to trucks. The technology is owned by HELP, a non-profit public-private partnership dedicated to advancing the safety and efficiency of the commercial transportation industry.

In addition, CVO uses a subscription model, and its revenues are not based on ton-miles driven. Historically, this has been a steadier model in a recession than investing in toll roads.

Through Kelling we have exposure to the growth of capital expenditures across critical infrastructure sectors in the UK at a time when expenditures in the sectors are growing across the board. We think this is a smarter way to invest today than investing in a single UK sector.

Q: Your portfolio comprises assets exclusively in North America and Europe. Will those regions continue to be your preferred target geographies as you deploy Fund III?

CB: Yes, we will continue to focus on North America and Europe. These are the regions where the team has gained the most knowledge and experience. There are many opportunities in these regions, more than enough for us to handle.

Q: The majority of your US investments are in the midstream sector – the Maurepas Pipeline being a recent example. Do you believe the energy sector presents the most opportunities in the country or do you see other sectors opening up to private capital? 

CB: While we have a number of midstream investments, they do not constitute the majority of our capital deployed. In our latest fund we have limited midstream to 20 percent of the portfolio, and have invested in well-structured midstream assets such as Maurepas, which has a 19-year contract with Shell.

We believe this to be the right approach in this sector given the variability in investment returns we have seen across the sector. From our perspective, a midstream investment needs a robust long-term contract underpinned by a strong creditworthy counterparty – these are crucial elements to our midstream strategy.

Q: Are there any plans to invest in renewables?

CB: There is a huge amount of capital focused on renewables and we are not likely to compete with that.

Q: Many fund managers tell us that regulatory risk tops their list of concerns. What type of risk concerns you the most at the moment and why?

CB: Regulatory risk is a concern. That’s one reason we were drawn to invest in Energy Assets Group. EAG has a portfolio of gas and electric meters under long-term contract with UK utilities. It is exposed to the credit risk of a group of utilities but not to the risk of a utility’s equity return being lowered by a regulator.

Q: During a recent roundtable discussion we hosted, five industry experts agreed that a market correction is coming soon. If so, what impact do you expect that to have on the sector?

CB: Beware experts bearing economic prognoses. Infrastructure done correctly should have less downside than equities. If a correction comes, it shouldn’t have a great impact on investments with long-term contracts and structured to limit downside risk.