The Pipeline: Airports nosedive, L&G thinks big, CalPERS embraces TCFD

Airport valuations take a 35 percent nosedive, L&G offers up a £190 billion infra plan to the UK government and CalPERS publishes its first TCFD report. 

First look

Going down: The covid-induced fall in passenger numbers has had a significant impact on airport valuations

Mayday, mayday!
At this point, it’s a given that most airports are in dire straits. But a recent conversation with a banker from an institution with significant exposure to the sector drove home just how bad things are. Looking across the institution’s portfolio, said lender expected to get their money back on most of their airports. For equity, though, they did not see a scenario where the airports in their portfolio would recover the value anytime soon – if ever.

That chimes with a recent document from the Santa Barbara County Employees’ Retirement System, showing public airport valuations falling by 25-35 percent. The report remarked that “many of the core airport assets were held at 20-25x EBITDA multiples with very strong debt/EBITDA profiles and cash distributions [but] some of these assets are [now] facing debt/EBITDA covenant breaches in an environment where passenger volumes and distress among airline carriers have severely strained revenues”.

Not exactly flying high, then.

What a difference five years make
When IFM Investors bought the Indiana Toll Road from Macquarie in 2015 using equity to pay for more than half of the $5.7 billion price tag, its revenues, earnings and earnings margin had been growing every year since its 75-year concession started in 2006. Still, the project went bust. As Julio Garcia, the manager’s North American infrastructure head, drily told us a couple of years later: “The problem with the ITR is that it had the wrong capital structure.”

So, how’s it faring now?

Remarkably well, as it turns out. In an article in our forthcoming July/August edition on North American toll roads, S&P Global Ratings singles it out for its stable outlook. Noting that “more than 70 percent of its revenues [come] from freight traffic, which has proven resilient during lockdown compared to commuter traffic”, it points out that “its long-term concession with no debt amortisation in the near term allows the toll road to weather the pandemic shock”.

A murky shade of green?
Since December, we’ve been hearing and reading about the EU’s ambitious Green Deal, a plan that aims to attract €1 trillion in public and private capital over the next decade as the continent targets net zero carbon emissions by 2050. In April, the European Commission underscored how important it will be for the continent’s post-pandemic recovery.

And last week, we read about it again, this time in less-than-flattering terms. According to a report from Global Witness, an international NGO, a group of roughly 40 gas companies, known as the European Network of Transmission System Operators for Gas, allegedly has significant influence over which projects receive EU subsidies. As a result, since 2013, more than €4 billion – or 87 percent of total subsidies – have gone towards projects backed by ENTSOG members.

Add to that the fact that the European Securities and Markets Authority omitted oil and gas from its definition of fossil fuels in its draft proposal for the EU’s sustainable disclosure regime, and one has to wonder whether the EU is suffering from a bit of colour-blindness…


“The early release scheme has provided vital short-term assistance for our members. But if urgent action is not taken, young women risk facing a greater vulnerability to poverty as they age”

CEO Debby Blake warns about the “gender super gap” after 62 percent of HESTA’s female members made applications for the Australian government’s Covid-19 Early Release Scheme

Who’s hiring

IFM sets sights on Westminster
The revolving door keeps turning as IFM Investors hires Gregg McClymont as an executive director in its London office, focused on public affairs. Although McClymont’s most recent posting was as director of policy at The People’s Pension, he also served as a Labour member of the UK parliament between 2010 and 2015. Indeed, from 2011, McClymont was the shadow pensions minister at a time when then-chancellor George Osborne was driving through a proliferation of ideas to bulk up UK pension schemes through mergers and encouraging them to invest in infrastructure, just like Canadian pensions or…Australian superfunds.

We’re hoping McClymont didn’t oppose that policy too much.

LP watch

Pensions and infra: A match made in heaven?

Hey big spender
Speaking of leveraging UK pension capital into infrastructure, Legal & General believes it has the answer. In a report published last week, The Power of Pensions, L&G outlined how underfunded defined-benefit schemes can transfer risk to larger insurers like itself and invest in building out mid-sized UK infrastructure in energy, transport and housing. L&G said this could total between £150 billion ($184.4 billion; €164.6 billion) and £190 billion of spending over the next 10 years.

We bet Josh Frydenberg would kill for that kind of initiative Down Under. In somewhat critical remarks, Australia’s federal treasurer recently told The Australian Financial Review (paywall): “Superannuation is a massive pool in savings that should be harnessed more for domestic investment. And I don’t care if they are industry funds or retail funds, I would like to see them both put to work on domestic infrastructure assets more than they have been.”

Alas, the domestic super fund reception, as outlined to the Sydney Morning Herald, mostly centred on telling the government to focus on policy stability.

We’re sure that’s got nothing to do with the government’s Covid-19 Early Release Scheme…

No going back
CalPERS believes carbon transparency should be here to stay.

The US pension giant released its first report as part of The Task Force on Climate-related Financial Disclosures this month – a milestone, given how little support we found for the TCFD in our recent Deep Dive on what the top 20 managers and investors are doing about climate change.

In its report, CalPERS stated that voluntary TCFD recommendations “should be integrated into mandatory corporate reporting,” to be overseen by the US Securities and Exchange Commission or the International Accounting Standards Board.

That may shine a light on CalPERS’ infrastructure portfolio, which stood at $4.8 billion as of 31 December 2018. Infrastructure accounted for 12 percent of the pension’s $39 billion real assets portfolio. However, its infrastructure assets released a total of 5.5 metric tonnes of carbon in 2018, which constituted the “majority” of CalPERS’ emissions from real assets.

Sounds like there’s work to do.

Today’s letter was prepared by Zak Bentley. Bruno Alves, Kalliope Gourntis and Jordan Stutts also contributed.

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