Infrastructure Investor’s Japan Korea Week was held in-person last week for the first time since the pandemic started, drawing more than 400 delegates to our summits in Tokyo and Seoul.
The forums provided plenty of insights into the infrastructure investment landscape and, while there was no escaping the sombre economic and geopolitical context facing fund managers and investors, there was still plenty of good news to go around.
Resilient infra portfolios
Perhaps unsurprisingly, the unprecedented factors currently facing the industry – with rising interest rates and commodity prices, as well as ongoing supply chain disruptions – were a talking point throughout the events. Among the risks facing investors, “secular disruption in the energy and utility sector is upon us, stranded asset risk is real and the assessment of sustainability objectives and their implementation is a major factor for investors to navigate”, QIC’s head of global infrastructure, Ross Israel, told the Tokyo and Seoul forums.
Investors looking to navigate this volatile investment landscape and build resilient portfolios over the next five to eight years should, according to Israel, make sure they are “underpinned by key long-term thematics; diversified from inflation and geopolitical risks; [are made up of] predictable, robust cashflow assets in growing economies with commodity supply resilience; and have sustainable asset-level capital structures”.
He concluded: “Undeniably, the investment opportunities in infrastructure remain strong… It is a real asset class with excellent defensive attributes in a high inflationary environment.”
‘Turbocharged’ sectorial growth trends
Another recurring theme was the anticipated surge in investment in the energy transition and digital mega-trends.
Pointing to renewable energy and digital infrastructure as key focus areas for EQT Partners, Fabian Gröne, a founding team member of the GP’s new Active Core Infrastructure Fund, told the Tokyo forum: “The Covid-19 pandemic has really turbocharged digital infrastructure growth and we think that trend is going to continue going forward. [Similarly], we’re seeing a turbocharging of some of the energy transition trends that have been in place for a period of time [as a result of the conflict in Ukraine].”
Within the energy transition, an increased willingness to invest beyond solar and wind projects was also apparent. Speaking at the Seoul forum, Stonepeak managing director Brad Kim highlighted the broad range of energy transition opportunities available, including carbon capture, renewable natural gas, the electrification of transport and biofuels.
Noting that it would be “extremely challenging in the near term” to replace Russian hydrocarbons with ESG and geopolitically friendly sources, Kim advocated for a “holistic view of ESG considerations with respect to the energy transition”, adding that responsible investments in traditional energy infrastructure should be considered alongside increased investment in new renewable energy sources.
Testing GPs’ mettle
Echoing the optimistic outlook for the asset class despite current macroeconomic and geopolitical headwinds, EQT Partners Asia Pacific vice-chairman Andreas Huber told the Seoul forum that the results GPs had grown accustomed to achieving over the past 10 years could still be achieved over the coming decade. However, they will likely have to work harder to achieve them.
“If we look back over the last 10 to 15 years, we’ve all benefitted tremendously from some macro trends. It was pretty difficult as an infrastructure investor in that growing environment to get it wrong,” Huber said.
“The last one to two years have clearly changed that. There are a lot of risks out there [GPs] cannot control. But also, in all our investments, there are a lot of things we can control with the right expertise.
“I think the next 10 years in that context will be much more interesting because all of us will have to prove our worth and work hard for it – maybe a bit harder than [before] – to achieve similar results.”