Infrastructure investing in the age of covid-19 

The pandemic will stress test the resiliency of the asset class, potentially like never before, shaking up the attractiveness of various sectors. 

How easily normality vanishes. As covid-19 spreads with lightning speed across the world – shutting down entire countries and leaving a heart-breaking trail of mortality in its wake – life, as we know it, is on hold.

There probably isn’t a single industry unaffected by this pandemic in our highly interconnected world. But some – think travel and hospitality – are truly in the eye of the storm right now, as much of the world goes into lockdown. 

Infrastructure investors, as owners and managers of essential assets, are not far from the frontlines. Indeed, most GDP-linked assets are now under varying degrees of stress, with airports very much under heavy fire. 

You’ll find examples of all of this in this week’s coverage, but for airports, the moment feels somewhat existential. The immediate threat is the obvious sharp, abrupt drop that comes with travel essentially stopping. Industry body Airports Council International said passenger traffic was down 90 percent in Italy. Across Europe the week 9-15 March saw a 54 percent reduction in traffic, after a 24 percent drop the week before. All in all, EU, EEA and UK airports have had 100 million less passengers than expected this year.

The plunge has been so dramatic, in fact, that the UK-based Airport Operators Association warned some UK airports would go out of business in the coming weeks without government help. Heathrow, Gatwick and Manchester airports – all privately owned – wrote to the prime minister warning they may “have to close passenger facilities and halt operations”.

Transportation assets tend to get hit hard in times of crisis but bounce back relatively quickly once they’re over. The difference here is that the intensity and duration of the shock might require government intervention in a number of sectors just to keep them alive until things stabilise. When and how that volume will rebound is the more interesting question, especially the ‘how’.

Coming back to airports, will current travel patterns resume and passenger growth continue on the upward trajectory it had been on until now? Climate change was already casting doubt on that scenario. But as the world embarks on what’s possibly the longest working-from-home experience ever conducted, it’s plausible that a more permanent change to travel habits may emerge as a consequence. 

Anecdotally, we’re already hearing plenty of feedback from managers marvelling at the efficiency of videoconferencing to get business done – including fundraising – adding they plan to drop certain trips from the schedule even when the current pandemic subsides.

It’s also unlikely that airports’ risk perception will emerge intact from the covid-19 outbreak, especially if many will need government intervention (let’s banish the thought of nationalisation for the moment) to survive.

You can take this short/long exercise and apply it to pretty much every sector out there and find a range of plausible scenarios for each.

The current crisis will also – like every other crisis – create opportunities. As Paul Chapman, director of real estate and real return at the $26 billion New Mexico State Investment Council told us: “I think our managers that are sitting on dry powder view it as a time when they will be able to make some smart buys”.

And just as covid-19 might ‘downgrade’ certain asset types it’s also likely to uplift others. It doesn’t take a genius to guess that digital infrastructure – already popular – is about to shine a whole lot brighter, as the need for fast and reliable broadband pretty much everywhere is underlined dramatically.

Covid-19 will also test how conservative managers have actually been in structuring their deals. And, if the pandemic turns out to be prolonged, it will likely test public-private relations like never before.

At the moment, there are too many ‘what ifs’ to speculate further. As we wrote yesterday, this is the time to pause; hunker down; wait and see; take a measured approach; watch the markets closely; get through this. And hope it’s not the “once in a century pathogen” Bill Gates and others have been fearing. 

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