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Engineering a better future
“Engineering is about the truth. It’s underpinned by facts and data and is not subject to prejudice. The quality of your engineering has nothing to do with your gender, nationality or your accent.”
In those few sentences, Lord John Browne, former chief executive of BP and a keynote speaker on Day 2 of our Global Summit, touched on themes relevant not only to infrastructure investors – think diversity and inclusion, and social licence to operate – but that also provide a sharp contrast to the current political climate in many parts of the world.
Browne’s comments recalled the explanation the late Andy Grove, chief executive of Intel Corporation, provided when asked why he chose to study engineering.
“Andy’s point bears repeating today,” Browne said. “Science and engineering are about the truth and should provide the fact base upon which we build everything else in society. But it seems to me that more and more people now see the truth as optional – or at least, give it the same weight as their opinions.”
“The substitution of opinion for the truth is a form of bigotry,” Browne continued, calling on government and business leaders to work harder than ever to demonstrate that they are worthy of trust.
He said that doing so would be one of several ways through which engineering could be used not just to build better infrastructure “but to chart a better course into the future”.
If you missed his presentation, you can watch it here and follow it up with the audience Q&A here.
Grapevine
Infrastructure is already green so there’s no need to wash it”
A bold statement from Schroders‘ Jérôme Neyroud when asked by GRESB’s Rick Walters whether the asset class was less prone to ‘greenwashing’
Talking points
Is infra long-term PE?
Our Deep Dive earlier this year asked whether the shorter-term, private-equity inspired fund model was doing infrastructure investment justice. Well, it seems there may be a shift on the cards as more LPs pile into the asset class.
That’s according to Harry Seekings, head of infrastructure at InfraRed Capital Partners, who, when asked to predict the future of the asset class, envisaged a change in investor appetite.
“There will be an expansion in wanting to hold infrastructure for the long term and as an income investment,” he told attendees yesterday. “There’s an evolution with institutional investors that hasn’t happened yet, and they are looking at core, buy-and-hold strategies.”
Regardless of how long these assets are held, though, EQT partner Andreas Huber highlighted that “you still buy companies and do your best to develop them – it’s not that different to PE”. No one really disagreed.
So maybe the key is to think of infra as long-term PE?
Moderation in all things
A balanced infrastructure portfolio should have been able to absorb the worst of the 2020 economic shock.
Without seeing the pandemic coming – which no one can claim they did – most portfolios had some amount of transportation or midstream energy exposure. But a well-built portfolio should also have renewables and digital exposure, two sectors that have seen strong tailwinds in the current market environment.
“If an infrastructure portfolio is built right, then there shouldn’t be liquidity issues,” said Ravi Parekh, a managing director for infrastructure investments at GCM Grosvenor. “Having a view going forward for downside protection will be important.”
Even if a portfolio took a hit, the asset class should bounce back quickly.
“Infrastructure will be impacted for a relatively short timeframe, but it will also recover in a short timeframe,” argued Jean-Francis Dusch, global head of infrastructure and structured finance at Edmond de Rothschild Asset Management.
A new home for long-term PPAs
The traditional 30-year power-purchase agreement that investors have come to love is becoming a thing of the past in OECD markets, according to Pooja Goyal, co-head of Carlyle‘s infrastructure group. Shorter-term contracts, with more flexible pricing and terms that favour the off-taker and not the financier, are increasingly common.
But the long-term PPA hasn’t disappeared altogether, said Lucy Heintz, a partner at emerging markets-focused manager Actis. In developing markets, she said, where governments are competing to attract foreign capital, PPAs with investor-friendly terms are still widely used.
You know where to go, then.
Today’s highlights
Here are three sessions you won’t want to miss today’s sessions:
- 12.00-12.45 Big data and infrastructure Panel discussion featuring Goldman Sachs’ Matteo Botto Poala, QIC’s Ross Israel, KBRA’s Garret Tynan, Digital Colony’s Kevin Smithen and bfinance’s Anish Butani
- 14.00-14.45 How lessons from elite sport can be applied to business after covid-19 Fable Partners’ James Kerr, best-selling author of Legacy, on New Zealand’s legendary All Blacks rugby players, shares lessons from one of the world’s most successful sporting teams
- 14.50-15.35 Surviving rough seas: infrastructure in a downturn Panel discussion featuring InfraVia Capital Partners’ Bruno Candès, Arjun Infrastructure’s Serkan Bahceci and Cube Infrastructure Managers’ Stefan Weiss
For the full agenda, go to our Global Summit Online homepage.
Today’s letter was prepared by Bruno Alves. Zak Bentley, Kalliope Gourntis and Jordan Stutts also contributed
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