This article is sponsored by Vauban Infrastructure Partners
Although there are plenty of opportunities related to digital infrastructure and the energy transition, the infrastructure sector is replete with challenges that require an experienced team and a steady hand. Natixis’s newly formed affiliate Vauban Infrastructure Partners has 15 years of infrastructure expertise. Founding partners Gwenola Chambon and Mounir Corm say the firm prides itself on taking a stakeholder-oriented approach that aims to align the interests of offtakers, regulators and users when investing in infrastructure assets for the long term.
What is the DNA of Vauban? And what is your specific focus and strategy to approach the market?
We focus on core infrastructure assets that provide essential services to communities. We have designed our funds with a long-term, 25-year strategy in mind, in order to match with the nature of the underlying assets.
We prefer to be involved in very long-term, essential infrastructure that aligns with both the regulator and offtaker as well as other stakeholders that will be developing and maintaining the assets in which we invest. That way everybody is on the hook for the long term, making sure that service is adequately provided. If the users, regulators and offtakers are satisfied, then we can expect long term sustainable value on those projects.
This reflects the fact that ours is a very stakeholder-oriented strategy, which, as a mid-market European manager focused on core infrastructure assets, is a key differentiating factor between us and others in the market. We place a strong emphasis on service, user satisfaction and alignment of all interests for the success of our infrastructure investments.
What challenges and opportunities are you seeing in the infrastructure sector today?
“If the users, regulators and offtakers are satisfied, then we can expect long-term sustainable value”
Infrastructure is a rising star in the private investment space among the private equity and real estate asset classes. More and more capital is being allocated to infrastructure, but the money is becoming concentrated in fewer and fewer hands. And the amount of money in the market is putting pricing pressure on investors. Therefore, in order to maintain relevance, managers need to have a differentiated strategy, a proven track record, and established partnerships to be able to deploy investor capital with efficiency. In a low interest rate environment, you have to take all the benefits of available liquidity but not add more risk on de-risked assets. So, typically, for example, we try not to maximise leverage but rather push for the longest available maturity on senior financing.
Other than pricing and leverage, there is also stakeholder interest in environmental and social governance issues, which you need to consider when investing in infrastructure assets. It is one of the key issues which you must make part of your DNA and investment approach. This is what we try to do with our long-term view. It is also important in terms of the risk approach you take in pursuing new investments to take into account the long-term climate impacts and resilience of infrastructure assets.
Other trends in the infrastructure market across Europe where there is immense need for capital investment are digital infrastructure and the energy transition. Investments in these sectors are essential to maintain Europe’s competitiveness in the market. This can only be done with private sector involvement while reconciling everybody’s interests in order to address those needs.
One further challenge that investors currently face in European infrastructure is that there is a lack of public support for private investments in infrastructure, whereas we’re in a low interest rate environment with a lot of liquidity available from investors that is ready to be invested over the long term. At Vauban, we believe that there is a need for the government to support investments by procuring projects.
On the lack of greenfield opportunities in Europe
A challenge for infrastructure in Europe is that we aren’t seeing as many procurement processes for greenfield projects hitting the ground. They are decreasing significantly. Meanwhile, the US is now getting a lot of attention from a procurement standpoint and becoming more important than Europe for the first time ever.
The lack of greenfield dealflow in Europe is partly a result of the debates on the legitimacy of private investments there. We have seen that vividly with the UK private finance initiatives debate on the legitimacy of private investments in public assets. The only way to reconcile everybody is by having a long-term horizon and aligning all interests to regain legitimacy and trust.
Which sectors and geographies are currently booming in European infrastructure?
The sectors we see drawing the most investor interest in the current environment are social infrastructure, utilities, digital infrastructure and transportation.
Our view is that the most active among those today is digital infrastructure. The digital divide has generated a need for a lot of capital expenditure across all geographies and jurisdictions.
In addition, there’s a long-term need to invest in data transport and storage to keep pace with the upward trend in data usage. It is a booming sector across Europe, and some countries on the continent are lagging behind more than others. This means there are some areas where the opportunity set is deeper than others.
Broadly speaking, another sector that is currently very active is the utility space. Opportunities in this sector relate to utilities – such as energy efficiency, electricity transmission, district heating, water treatment and waste, which are in need of greater investment in order to realise energy transition goals.
We have seen new types of infrastructure emerging over the years as the needs of the population have evolved. There is an increasing trend of urbanisation everywhere, so there are opportunities in sectors like electric vehicle charging in several countries. At some point, that may become a standalone infrastructure asset class. This is similar to how fibre emerged 10 years ago as a new type of infrastructure. Initially, when we moved into the fibre sector, we were among the first movers, and many infrastructure funds were wondering whether it would evolve. Now fibre has become an essential utility.
In terms of geography, the historically active European infrastructure markets of France, Spain, Portugal, Italy and the Nordics remain engaging, and these are where we find the most transactions in the private investment space. Ireland is also a dynamic market. Conversely, we see less opportunities in Germany or similar markets where there’s not a culture of private investment in infrastructure, and where there is a very strong local pension industry which makes it difficult for GPs to penetrate and invest.
Tell us more about how Vauban Infrastructure Partners was formed
Vauban is a dedicated affiliate of Natixis Investment Managers that is focused on infrastructure equity investment. It has $3 billion in assets under management, 35 team members and a 15-year track record with an entrepreneurial structure.
Vauban IP completes Natixis Investment Managers’ real assets offering. Natixis IM already had offerings in the real estate and private equity markets, and now Vauban exists to focus exclusively on infrastructure investments. We became a dedicated affiliate at the end of 2019.
“We believe that there is a need for the government to support investments by procuring projects”
Vauban is a fully fledged investment company dedicated to investing in core infrastructure assets in Europe in perfect continuity with what the team had been doing for the past 10 years. Most senior members of the team have become minority stakeholders alongside the strategic investment manager, which is the principle of creating a partnership. Natixis has a circa 60 percent stake, while we maintain a circa 40 percent stake.
What is the typical investment ticket size for projects that Vauban targets?
This is actually quite variable, because while we have funds, we also have co-investment deals, so the magnitude can be large. Our average ticket size can range from $50 million equity cheques to much larger amounts, depending on the transaction.
We try to cover the mid-market and add diversity on the lower and higher ends of the market. We can acquire portfolios of public-private partnerships as well as co-controlling stakes in larger corporate infrastructure. We take controlling positions and try to be agile, because capacity requirements and agility are the best way to approach leading roles.
We have also built industrial platforms and strategic partnerships with industrials. So we could start with a smaller $20 million to $30 million equity cheque and then build it up. When we look at our portfolios, between two-thirds and three-quarters of the transactions we’ve completed were bilateral, acquired through strategic partnerships with industrial sponsors or industrial platforms.
What are your plans for Vauban? What do you see for the company over the coming years?
We hope to continue to grow our platform, and to double our assets under management from $3 billion to $6 billion in the next three years. We want to keep focusing on what we do best, which is core infrastructure in Europe and strategic partnerships with industrial sponsors. For now, we are only focused on Europe. We may at some point in the future look at the potential for geographical diversification.