Join our 13-15 July Global Offsite

Three investors walk into a room: one Canadian, one Japanese and one Australian. The Australian is from France and the Canadian is Dutch. And the room is not really a room. No matter. Welcome to a virtual session at the utterly online and unmissable Infrastructure Investor Global Offsite on 13-15 July.

Book now to be part of the conversation with Nicolas Merigoux, portfolio manager at VFMC, Liane Groenendijk, principal at BCI and Yasuhiro Ono, head of infrastructure investments at Japan Post Bank. In an interactive session they will be discussing fear and greed… sorry…valuation shocks, new funds, old friends and where we go from here.

The Global Offsite is an opportunity to spend time with your peers and rivals, to find out what investors really think and to get set for a post-pandemic world. See you there.

Green Arrow targets ‘infra of the future’ with €750m fundraise
Italian alternatives manager Green Arrow Capital has set its sights on the horizon with its new Infrastructure of the Future fund, currently in pre-marketing and targeting between €500 million and €750 million to invest in… well, mainly energy transition assets, but with a dash of digital infrastructure on the side. It will primarily focus on Italy, but can also invest in Spain, Portugal and France.

The new vehicle will look at acquiring operational wind and solar projects, develop solar assets that can secure long-term PPAs, energy storage (either on its own or co-located), electric-vehicle charging infrastructure, as well as 5G towers and, potentially, other digital infrastructure. We’re thinking Infrastructure of the Present wouldn’t quite have the same ring…

It’s all relative
In its latest report, EDHECinfra argues that the near-immediate impact covid-19 has had on infrastructure sub-sectors such as airports, toll roads and midstream underscores the need for investors in the asset class, be they GPs or LPs, to abandon the use of absolute return benchmarks.

“Infrastructure investments are not market-neutral and… investors in infrastructure cannot escape the fact that the prices they pay for assets are formed in a market, where systematic risk exists,” the authors state.

This is why the institute urges investors to adopt market-relative benchmarks, and points to the indices it launched last summer that now have a “live track record” to help them do so.

EDHECinfra has banged the drum against absolute benchmarks before, but perhaps a true crisis may prompt proper change.

“The realisation amongst investors that infrastructure assets represent significant risk exposures and that these should be understood and managed will determine the coming of age of the infrastructure asset class,” EDHECinfra says.

Finally, a safe landing?
Speaking of “significant risk exposures”, last week brought further bad news for the beleaguered aviation industry in the UK, as Swissport announced cuts to thousands of jobs across regional airports owned by the likes of IFM Investors, Macquarie Infrastructure and Real Assets and AMP Capital.

However, there was some relatively good news courtesy of Moody’s, which affirmed the Ba1 and Baa1 credit ratings of London’s Heathrow and Gatwick airports, respectively. The ratings agency expects that the finances of both will “return to levels more commensurate with current ratings” in the next two to three years.

Particularly in the case of Heathrow, Moody’s said it “remains a key infrastructure provider, with potential for a strong recovery once the outbreak and its effects have been contained”.

Heathrow, we understand, has a better liquidity position than many of its peers, having raised significant amounts of finance in preparation for a no-deal Brexit. That’s disaster planning for you.

Essentials

Death, taxes and… management fees?
“In this world nothing can be said to be certain, except death and taxes.” So said Benjamin Franklin. He hadn’t come across management fees then.

As Private Equity International’s Adam Le wrote last Friday on Dyal Capital Partners’ latest deal, one of the few to securitise PE firms’ management streams: “At a time when the coronavirus crisis has brought much uncertainty, one thing investors can bank on is that GPs will collect their management fees, rain, hail or shine.”

That certainty has allowed Dyal to distribute $1 billion to its investors, after bundling up the future cashflows from the management fees of the 10 GPs held in its 2015-vintage Fund III into a vehicle backed by 20 investors – mainly large US insurance firms. Death and taxes, it seems, have company.

Grapevine

“A natural consequence of forcing off baseload and increasing the levels of renewables is you have to deal with that intermittency. Covid has put that on steroids”

Bluefield Partners’ James Armstrong with a unique take on covid-19 and the energy transition as the Bluefield Solar Income Fund looks to diversify

LP watch

‘Nonsensical’ infra
Hostplus chief investment officer Sam Sicilia, in an interview with Investment Magazine, has described as “nonsensical” the binary classification of infrastructure assets as either ‘growth’ or ‘defensive’.

Sicilia said the labels are “suited to an investment environment of long ago” when portfolios almost entirely comprised bonds, cash and equities. He argued that investors should separate growth and defensive characteristics at an individual-asset level, so that an infrastructure asset with both capital-appreciation and yield components can be in both buckets.

In a typically outspoken discussion, he labelled criticisms of Australia’s not-for-profit industry superfund sector as “laughable”. He also defended Hostplus’s liquidity position after the fund, and Sicilia himself on Twitter, came under fire for the amount it had allocated to illiquid assets.

Sicilia, currently taking a breather from Twitter (his last post – “in a crisis, everyone is a socialist” – was posted on 28 March and can be found here), said the personal attacks on him vindicated his assessment of the performance of Australia’s not-for-profit industry superfunds. “They had run out of intellectual arguments, therefore [they] resort to attacking people personally,” he said. “That’s not the way we do business.”

Deals

Floating new ideas for renewables
We’ve already seen the growth of floating solar – or ‘flotovoltaic’, if you like. However, a deal last week could represent a game-changing moment for floating offshore wind after Natixis acted as the sole green loan coordinator for the £380 million ($466.8 million; €415.8 million) financing of a site in Scotland.

The 50MW Kincardine site, owned by Spanish infrastructure giant ACS, will be the largest of its kind when construction is completed by the end of the year. The technology is at a relatively early stage, although it could provide significant advantages to offshore wind in terms of construction speed, transmission costs and installation further away from the coast.

The financing was also given the seal of approval by the Climate Bonds Initiative. Natixis did not provide further financial details, though we’d be disappointed if the bond did not have a floating rate.

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