Thriving on complexity

Phil Peters, global head of investor solutions at Macquarie Infrastructure and Real Assets, tells us about new structures, technology and the importance of sustainability.

Q: Our II 50 ranking has grown by 23% this year, as investor appetite for infrastructure continues unabated. How is MIRA evolving in response to this climbing demand?

PP: Our model is evolving all the time in response to the needs of our investors. As a business, we raised $12 billion across 11 different infrastructure products in the financial year to March 2018, including the successful establishment of a number of new products.

Notably we launched Series 1 of our Super Core infrastructure strategy, which provides investors with access to regulated utilities in Europe. That product has enabled us to provide existing clients and new sources of capital with access to that part of the market.
Another example of a product we have recently innovated is a global feeder fund called MIRA Infrastructure Global Solution (MIGS). We created MIGS to provide investors with access to all of our regional funds in a single structure.

As the asset class matures and investors are becoming more sophisticated, it has allowed us to provide bespoke solutions that five or 10 years ago would not have been possible.

Q: Are you seeing growing demand for co-investment? And, if so, is that demand translating into deals getting done?

PP: Yes, we are seeing more demand from investors globally for co-investment as they look for ways to gain direct investment in real assets. We are pleased that we have been able to respond positively to that demand. For example, in the current vintage of our flagship fund in Europe, MEIF 5, we have already had nearly €2 billion of co-investment associated with that vehicle.

Q: What changes have you seen in the investor base targeting the infrastructure industry?

PP: As the sector grows we are continuing to see shifts in our investor base. For example, we welcomed 30 new clients to the MIRA platform over the past year. Those 30 come from 17 different countries. A number of those 30 are also investing in infrastructure for the very first time.

In terms of which regions are driving demand – we are seeing increased demand from across Asia Pacific, in particular, but we are also finding new clients in EMEA and North America. Even in more mature OECD geographies, infrastructure is still a relatively new asset class with a lot of inherent growth.

Q: What are investors looking for in a manager and is it changing?

PP: Investors want to be confident that a manager has a proven track record. They want to know the manager has the depth of resource and complementary levels of expertise across origination, execution and asset management, to deliver the returns they are ultimately expecting.

Increasingly, investors are also looking for the ability to provide bespoke solutions such as co-investment. This is becoming more important as investors grow in sophistication and as their own businesses evolve.

Q: How do you respond to investor concerns regarding the wall of money entering the asset class and how are you adapting your strategy as a result?

PP: Competition is not a new phenomenon. In terms of our business, though, we focus on remaining disciplined. There are two aspects to that. First, we are conscious about not having mandate drift, maintaining discipline around the key infrastructure characteristics we seek. Second, we take a strong view on relative value. Last year alone, we deployed around $8.5 billion across 18 acquisitions and 20 follow-on investments in 14 countries. The scale of our platform allows us to have a good lens on relative value globally.

I also think MIRA’s ability to seek out complex transactions is relevant. A good example would be our recent take-private of Danish telecoms company TDC. Complex transactions can have different attributes – they may be take-privates, they may involve a carve-out from a broader corporate, they may be roll-up transactions or involve significant capex requirements. Sometimes complexity can be just a question of scale.

When we think about returns and value, we are conscious of what we bring regarding the ability to complete these complex deals. It’s about having the right depth of resource and complementary skill-base. It’s also one of the virtues of our regional model. We have large teams on the ground across the Americas, Asia Pacific and Europe and the size of our teams means we can pursue a number of these transactions simultaneously.

Q: Growing demand for infrastructure comes as the asset class is poised for change in other ways. Technological development, in particular, is key. How is MIRA making most of that advancement?

PP: It is an area we pay a lot of attention to. For some time, we have been augmenting our own internal capabilities with experts who can help us understand technology and innovation. We have mapped our current investment portfolio to ensure we fully understand the drivers and the potential, as well as the timelines, and the inter-relatedness of some of these technologies. This also allows us to have a forward-looking lens when it comes to future investments.

There is also the asset management lens. We are working with technology to optimise efficiencies in our portfolio. One example would be around offshore wind assets that we own in the North Sea. Not long ago, there would have been a human wearing a harness who would inspect the blades on an offshore wind turbine. Now we use drones, controlled from a nearby vessel.

Elsewhere, in our agricultural business, we are using new forms of precision irrigation to augment and enhance efficiency. There are a whole range of things we are doing with technology within our existing portfolio and, alongside that, a whole range of measures we are taking to ensure we have the right tech abilities internally to be able to understand, interpret and respond to those changes.

Q: Sustainability is also growing in importance, with ESG high on the agenda for most investors. What are your experiences of investor demands regarding sustainable infrastructure and how are you incorporating sustainability into your strategy?

PP: As long-term managers of essential infrastructure, sustainability is at the core of everything we do and we are committed to making a positive impact on the companies we invest in and the communities they serve. Sustainability is also certainly growing in importance for our investors. We address sustainability in a number of ways. As part of Macquarie Asset Management, we are a signatory to PRI. We have also been active members of GRESB Infrastructure since it launched in 2016 and are proud that one of our funds was a sector leader this year. These are all important examples of us walking the walk, as well as, talking the talk.

In addition, we have built strong internal procedures incorporating ESG into our end-to-end investment process. Our global risk and sustainability team works alongside our investment teams every step of the way.

We have also built sustainable practices into some of our investment products. One example would be in one of our agricultural funds in Australia. That fund has a relationship with an organisation called CSIRO, the Commonwealth Scientific and Industrial Research Organisation. We also operate in conjunction with the Clean Energy Finance Corporation. At the heart of that product is an established methodology to monitor energy emissions associated with farming practices. This is an example of how we increasingly look to embed cutting-edge socially responsible features within investment products.