Five themes that will shape 2021

At this point, we’re sure you’ve read all you can about the rise of digital infrastructure during the pandemic and how strongly renewables have been performing. So, we thought we’d highlight five themes that are less obvious in our February Deep Dive, but, we wager, will be equally important in shaping the year ahead.

None of them are new – and some of them are likely to have cropped up on your radar in previous years. Much like renewables and digital infrastructure, though, almost all of them have been accelerated by covid-19.

Take economic nationalism, which has been playing out in the background for several years. As Australia illustrates, the pandemic has given fresh impetus – or is that cover? – for politicians to pursue more aggressive policies. As Lachlan Molesworth of FIA Australia told us: “There is no doubt that the level of scrutiny that is now being applied to inbound transactions is without precedent historically.”

Force majeure provisions, likewise, have been a mainstay of infrastructure contracts, but were stress-tested thoroughly by the coronavirus. While a majority of contractual clauses proved adequate, expect negotiations to become more pointed in 2021. “Now, we’re aware of covid-19 and have been dealing with it – and we are more conscious of the threat of pandemics generally – we know it’s often government responses, rather than the virus itself, that can be the cause of many issues with contractual performance,” said Michael Lawson, a partner at King & Wood Mallesons.

A similar tale could be told about the rise of high-yield debt. Although infrastructure debt has enjoyed growing investor interest for years, the ‘safety net’ of credit has been under the spotlight since the emergence of covid. What’s more, equity managers are finding their skillsets valuable as they branch out into high-yield debt, which many see as a better risk-adjusted play these days than core equity.

The lower-for-longer environment, which the pandemic has ensured will remain, is also impacting the final two themes we look at: increasing specialisation and the rise of infrastructure as a service. As we scrutinise the former, we ask whether generalist managers really have the skills needed to meaningfully manage assets across the plethora of sectors they now invest in. Our investigation into the rise of infrastructure as a service gives you an idea of what some of those new sectors look like.

—
Australian superfunds will be sharing their outlook and thinking at the third Infrastructure Investor Global Passport networking get-together, on 24 February. It is your chance to question Cbus’ head of infrastructure, Alexandra Campbell; HESTA’s general manager of unlisted assets, Will MacAulay; and Aware Super’s assistant portfolio manager, Brent Snow. Hosted by our own Daniel Kemp, it is the latest in a year-long programme of networking workshops, conferences, interviews and panels we’re hosting for Passport members only. To find out more, visit: https://bit.ly/3jeVFHx