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The Pipeline Global Summit Special: Day 1

Welcome to The Pipeline Global Summit Special, showcasing coverage of our flagship conference this week. Here's what we learned on Day 1, which featured specialist forums on ESG, emerging markets and social infra.

ESG and sustainability forum

Green assets no easy ESG-win
Investors are taking a far more nuanced approach to ESG, and gone are the days when ‘green’ assets would automatically be considered an easy win.

According to Mercer Investment’s global head of infrastructure, Amarik Ubhi, investors increasingly understand the physical characteristics of an asset don’t necessarily translate into good ESG integration. “You can have a renewable power asset or company that is actually very problematic from an ESG perspective,” Ubhi told attendees.

With investors understanding there’s more to ESG than meets the eye, the nuanced approach is good news for assets not traditionally seen as ESG-friendly. As investors increasingly focus on how ESG is integrated into a particular asset and how it’s managed – rather than the physical characteristics of the asset itself – Ubhi pointed out that will help broaden the investment horizon.

“If you think of traditional utilities, they may not be seen as being climate change-friendly, but there are clear environmental aspects of their operations on a day-to-day basis. Investors wouldn’t necessarily rule out mainstream infrastructure if good ESG integration can be demonstrated,” he said.

PPF turns its back on laggard managers 
The cultural differences in approaches to ESG between Europeans and their North American and Asian counterparts are well known. They were duly acknowledged by Claire Curtin, head of ESG at the UK’s Pension Protection Fund, who gave a warning to GPs across the board.

“We have had to increase the hurdle a bit more now and if we have an existing manager and they’re really lagging compared to where our other managers are moving to, we say, ‘We won’t be re-upping with you until you really improve practices a bit more,’” she said.

Curtin went further, though: “In RFP processes, people won’t even get through to the presentation round unless they already have general counsel saying they will commit to [UNPRI]. We have had to walk away from situations where they haven’t got to the level they need to.”

So, that’s the PPF way of addressing laggard GPs. Will the laggard LPs follow suit?

Emerging markets forum

Not out of the woods yet…
It’s perhaps unsurprising to hear that emerging markets have had it the toughest since the pandemic started.

“Emerging markets were hit harder because the fiscal stimuli seen in the developed world were tough to replicate. For example, most emerging-market airlines weren’t bailed out, so there were bankruptcies as they couldn’t get enough liquidity,” Morgan Landy, senior director, Global Infrastructure at the International Finance Corporation, told delegates.

And while everyone agreed most emerging markets have turned a corner last year, they’re not out of the woods yet.

“There isn’t yet enough risk capital flowing into emerging markets,” warned Viktor Kats, managing Partner at Augment Infrastructure, though he was quick to highlight there is a big difference between countries that have deep capital and institutional investor markets – like India and Brazil – and countries that are completely reliant on external capital.

“For those with capital to invest, though, there are fantastic opportunities,” Kats argued. He highlighted logistics infra as supply chains get shortened; the water sector, if you can find the right assets and countries to invest in; digital infra, though it’s predictably “super-competitive and some prices are just crazy”; and distributed renewables for commercial clients looking to meet net-zero targets, which offer better returns than utility-scale assets.

…but climate opportunities beckon
For Pollination executive director Deniz Harut, “there’s a lot of money chasing climate-aligned opportunities [and while] hurdles may be higher for investors flowing back to emerging markets, infrastructure is a good asset class for long-term investments, as long as they have net zero and nature positivity at heart”.

According to Harut, emerging markets need to create a 1.5C-aligned project pipeline. “Multilaterals can help with that, by creating some kind of labelling, for example. Investor demand is there, but they are confused over where to allocate capital,” she argued.

Developing economies also need to get on top of climate adaptation.

According to Leticia Ferreras, portfolio manager, development finance at Allianz Global Investors, blended finance can help with that. “Blended finance – vehicles that combine public and private capital – is very efficient for us to tackle challenging projects and jurisdictions. Not just blending capital but also blending knowledge,” she said.

Grapevine

“It’s sad to see disasters like the war trigger the willingness to invest. It’s like, ‘Guys, I saw you six months ago, why didn’t you invest then?’”

Ukrainian entrepreneur Karolina Attspodina, co-founder & CEO, WeDoSolar, bemoans the fickleness of some impact investors

Social infrastructure forum

Taking the reins of healthcare investments
It’s not uncommon to find healthcare assets in infrastructure portfolios. But depending on the strategy, these assets can look very different from a risk/return perspective. That’s also one of the reasons why the debate around which asset class healthcare is best suited to can become quite heated.

“I think what some people mean by healthcare in an infrastructure context [is investing in the sector] under a PFI model with an operator contract,” Adam Ringer, partner at AMP Capital, said.

But others, like AMP Capital, are “happy to invest” in healthcare as operators, generating superior returns, and “[by] satisfying the under supply… providing a social good”, he said.

Operating such businesses – as opposed to only investing in the physical assets – allows the investor/operator to control the management of the company. Ringer referred to AMP Capital’s portfolio company, CMG, in the UK, as an example.

“Because we could control the management of the company, we [were] able to protect [residents and staff].”

If the operator of the business is a third party, “you’re effectively asking someone whom you don’t really control to take that critical risk”, Ringer said, before asking: “What would you rather have in that situation?”

Social infra is in the eye of the beholder
The European Commission has an infrastructure plan: through a public guarantee system run by its InvestEU programme, it aims to mobilise €372 billion of public and private infrastructure spending through a series of guarantees, including in social infrastructure.

However, some, such as DWS’s senior principal, Thomas Kalthoefer, are unconvinced that public social infrastructure needs match those of private investors. Raising the point of the group’s investments in cancer care, such as in RadioOnkologieNetzwerk, Kalthoefer argued definitions can swing depending on how investment managers view it.

“The fundamental issue is on the investor side; it is [matching] the availability of assets with how investment managers look at transactions, rather than how municipalities look at transactions.”

In the new world of social infrastructure, it seems the core-plus returns on offer are rather more enticing than a municipality-led PPP.

Today’s highlights

Here are three sessions you won’t want to miss today (all times CET):

  • 10:10-10:50 Keynote: Learn the art and science of leadership with Gillian Tett’s anthropological take on business The FT editor-at-large talks about making better decisions by incorporating alternative points of view.
  • 11:20-12:00 Keynote: Cybersecurity, critical national infrastructure and digitisation – What could possibly go wrong? Nicole Perlroth, adviser to the US’s Cybersecurity and Infrastructure Security Agency, talks about cybersecurity risks.
  • 16:30-17:10 Global Keynote Panel: The big ideas shaping the industry in 2022 and beyond InfraVia’s Bruno Candès, Antin’s Rodolphe Brumm, ClearBridge’s Matt Bushby, Apollo’s Dylan Foo, EQT’s Masoud Homayoun and Arjun’s Surinder Toor discuss the key topics of the day

For the full agenda, go to our Global Summit homepage.


Today’s letter was prepared by Bruno AlvesZak BentleyKalliope Gourntis and Tharshini Ashokan also contributed.

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