Infrastructure Investor is asking LPs what they really think about infrastructure-like assets and whether they are happy with how their managers are communicating the opportunities and risks they present.
In the third of a series of Q&As (read the first two here and here), we spoke to Kasper Struve, director of private investments at Danish scheme Industriens Pension. Infrastructure accounts for more than 10 percent of the pension’s €23 billion portfolio and Industriens’ allocation is roughly equally split between direct investments, funds, and co-investments.
Q: What’s your view on so-called infrastructure-like or infrastructure-adjacent investments?
KS: Opportunistic strategies and assets have been part of our infrastructure investment mandate for the past 10 years and – done correctly and through the best-suited managers – we actually think such investments play an important role in achieving the optimal risk/return profile for your infrastructure portfolio.
Q: Do you consider these assets because of the amount of capital coming into the asset class and the pressure it puts on returns – or would you consider them regardless?
KS: We would consider them regardless.
Q: When it comes to calling an investment ‘infrastructure’, what’s the trade-off you are prepared to accept between an investment’s contractual characteristics and the actual underlying asset?
KS: We are less sensitive to the duration of the contractual characteristics as long as the asset is, indeed, an infrastructure asset. For us, it needs to pass the test of being essential to society, with a strong position in a market with very high barriers to entry and a prudent level of asset backing.
Q: Are there other boxes an infrastructure-like investment needs to tick for you to be comfortable with it?
KS: In addition to the above, we need to be comfortable with the financing structure and that the levers presented as risk mitigants in a downside scenario are, indeed, true and actionable.
Q: Are you satisfied with how managers are communicating these infrastructure-like investments to you?
KS: We all know that when the music stops there will not be chairs for everybody. There will be missteps in the opportunistic/infrastructure-like pool of investments – that’s the nature of investing without perfect information. What keeps me less worried this time around compared with the pre-Crisis period is the more prudent approach to leverage, where in most cases the asset is GDP-linked. We don’t see 10 times-plus EBITDA leverage for cyclical GDP assets like we saw in 2007, although of course things can get stressed at today’s levels as well.