How is infrastructure changing?
Anne Valentine Andrews, global head of real assets, BlackRock Alternative Investors: The sector has seen more change in the last 10 years than in the previous 50. It is now cheaper to build new renewables from scratch than operate existing coal plants in a growing number of countries.
At the same time, we see the digital world converging more and more with physical infrastructure – think smart grids, smart mobility and energy efficiency. We are also seeing positive technological advancement with cost reductions in areas such as energy storage, carbon capture and storage, and hydrogen.
Mathias Burghardt, head of infrastructure, Ardian: The current growing competition is leading to a broadening of the infrastructure definition by GPs: we have recently seen commercial or social services being called infrastructure.
Michael Ebner, managing director, sustainable infrastructure, KGAL: Investors are increasingly looking to diversify their growing infrastructure portfolios among geographies, technologies, managers and investment cycles. This results in growing interest in, for example, renewable energy assets in Central and Eastern Europe and other formerly peripheral markets.
Markus Hottenrott, CIO, Morgan Stanley Infrastructure Partners: As the industry continues to grow, there is a significantly increased focus on ESG integration.
David Scaysbrook, managing partner, Quinbrook Infrastructure Partners: Certain infrastructure subsectors are becoming significantly more complex, with more macro-level drivers of risk and value. It commands more specialist expertise and is increasingly challenging for generalist investors.
Claus Fintzen, CIO infrastructure debt, Allianz Global Investors: The role infrastructure can play in a post-pandemic recovery as a driver for a sustainable, more digital and more resilient future has gained even more importance. We also see an increasing interest by private equity players entering the market of core-plus infrastructure.
Barbara Weber, founding partner, B Capital Partners : Infra is becoming a mainstream asset class with institutional investors across the board committing significant parts of their asset allocation to it.
What market trend isn’t getting enough attention?
CF: I don’t believe that the markets are considering enough the effect of longer lasting inflation and its associated risks of refinancing existing liabilities. Leverage levels have increased, induced by the low interest rate policies of central banks.
AVA: The ageing population is driving opportunities in social infrastructure and real estate such as retirement and nursing homes and home care services.
MB: Digital disruption is having, and will have, a tremendous impact on infrastructure companies’ business models.
ME: Impact investing is already getting quite a lot of attention, but it is likely to become even more prominent in 2022 and beyond. We expect Article 9 of the SFDR on impact funds to emerge as the gold standard for ESG investing.
DS: The application of AI and machine learning and the profound changes that will come.
What is keeping you up at night?
ME: The pace of the energy transition is still way too slow, especially if we take into account the enormous rise in demand for renewable energies in the next decades.
MB: Climate change is an inevitable truth. Shifting the global energy system from its dependency on fossil fuels to more sustainable forms is the greatest challenge facing the world today.
AVA: We are still falling far short of the level of ambition to achieving net-zero carbon emissions by 2050. Investment in clean energy hasn’t been enough to offset the decline in fossil fuels investment.
BW: All the people – predominantly in emerging markets – who are desperate to get access to decent, basic sustainable infrastructure, which would make such a difference to their lives.
DS: Technological obsolescence, irrational political intervention and overhaul of market design/function.
What is going to be the most exciting development in 2022 or beyond?
ME: Having focused on green power generation over the last two decades, economies are now starting to decarbonise all other sectors such as transport, agriculture or industry. Therefore, Power-to-X – the emission-free transformation of renewable energies into other energy vectors, including heat, synthetic gas or ammonia – will be the most exciting and important trend in the years to come.
CF: How to upgrade and update infrastructure while contributing to decarbonisation will, hopefully, result in innovative technologies and concepts, such as e-mobility, hydrogen production or data centres.
MH: We need to invest more in digital infrastructure, whether that is storage, computing, transmission or radio. There needs to be more of it and it needs to be open-access.
DS: Industrial decarbonisation through greater adoption of renewable power.
What is the most common question you get from LPs?
BW: How can you generate alpha when there is so much competition in the market and the prices are so high?
CF: Most investors are asking questions regarding the speed of deployment of core infrastructure. A lot of new investors are entering the already quite crowded market for infrastructure investments, which puts pressure on financing terms and margins.
MH: How can you continue to generate attractive investment opportunities, given the level of competition in the infrastructure market? We choose to focus on complex opportunities, such as carve-outs, where there’s more scope to add value through active asset management.
AVA: One of the most common questions we get from LPs is: where do we see the next big opportunity within infrastructure? We are seeing huge investment activity in Asia-Pacific, where there remains a structural financing gap.