Growing interest in social infra doesn’t make it an easier investment target

In late June, we wrote an article asking whether infrastructure debt was going to be one of the ‘winners’ of the covid-19 pandemic. Since then, anecdotal evidence seems to indicate that it is, indeed, faring well.

Many people might be asking a similar question regarding social infrastructure. After all, as Georg Inderst put it in his March paper on the sector, “social infrastructure has endured a long period of neglect in most developed and emerging countries, with chronic underinvestment exposed by the coronavirus crisis of 2020”.

Healthcare, for obvious reasons, is under the spotlight, with many countries surely feeling the pressure to beef up their systems. But other sub-sectors, like education, are not far from the glare either.

As with digital infrastructure, the pandemic is likely to accelerate investor interest in social infrastructure. Right on cue, Antin Infrastructure Partners announced this week that it was investing in French firm Babilou, a specialist in early childhood education with nearly 800 facilities in 12 countries. Earlier this year, Whitehelm Capital acquired 11 Norwegian pre-school properties as a bolt-on through portfolio company Pioneer Public Properties.

In reality, though, that interest has been evident for some time now.

Last February, we wrote at length about investing in healthcare infrastructure. As Asma Capital’s Stephen Vineburg elegantly summarised it, healthcare investments are “not for the faint-hearted”.

“It’s not like owning a wind farm, that’s for sure. It’s a very technical and demanding business,” he added.

‘Business’ is a good word to keep in mind – but so are terms like ‘operational complexity’ and ‘specialist skills’ – when looking at this new wave of social infrastructure opportunities. Regardless of the sub-sectors, a significant amount of social infrastructure deals now being targeted by institutional capital are not akin to the PPP-type structures of yesteryear.

“They can also be small and fiddly, very heterogeneous with outputs difficult to measure and subject to some political and renegotiation risks. This necessitates not only good management and governance but also appropriate investment vehicles,” Inderst warned in his March study.

Depending on the sub-sector and asset in question, they can also be hybrid-like, straddling other asset classes like real estate or private equity.

Stephen Gaitanos, chief executive of Scape, Australia’s largest provider of off-campus student accommodation, told us in late May that he didn’t understand “how these assets end up in infrastructure portfolios”. Our colleagues at sister title PERE, which focuses on private equity real estate, wrote an editorial in June arguing that affordable housing should be considered an infrastructure investment. A cursory look at Antin’s Babilou deal can leave you wondering whether it’s not closer to pure-play private equity than infrastructure.

And that’s before we get to the outer edges of social infrastructure – think, theme parks – where, as Inderst put it, you start bumping against “the question [of] how far the ‘infrastructure’ term can opportunistically be stretched”.

That’s not to dissuade anyone from investing in social infrastructure, because there are very good reasons to do so – size of the opportunity and demographics among them. Rather, it’s to highlight this is a fairly broad church.

As Anish Butani, senior director of private markets at bfinance, says in our upcoming Strategies report to be published alongside our September edition: “The terminology is helpful, but only to a degree. Labels can support portfolio construction and planning, but rest assured: outcomes will always be driven at an asset level, and those assets can vary considerably.”

It’s up to investors to decide, then, on a case-by-case basis, which social infrastructure assets make sense for their asset class allocations.

Write to the author at bruno.a@peimedia.com