If Quentin Tarantino were in the business of writing and directing financial capers, then at this point in Pulp Finance, Bruce Willis would be climbing into the back of his chauffeured sedan (instead of his stolen ‘chopper’) and answering a very different question, perhaps from some doe-eyed intern reeling from starting work as the investment world again turns on its head:
“Who’s TINA?” our slightly breathless intern would ask. To which Willis would deadpan: “TINA’s dead, baby. TINA’s dead.”
Happy New Year and welcome to 2023, the year when ‘there is no alternative’ (TINA) gives way to ‘there are reasonable alternatives’ (TARA) – in financial markets and beyond. As we get ready for another bumpy 12 months, here are three ideas to help infrastructure professionals ease into a new mindset.
Time to decouple
As we’ve written before, the TINA mentality helped propel the alternative asset classes to mainstream glory. While not everyone agrees, we’d say there are now competitive alternatives to alternative assets. With parts of private markets looking less desirable in our new investment regime – and some LPs suffering from overexposure – it’s time for infrastructure to put some polite distance from the rest of the pack.
Put simply, infrastructure is the asset class of essential services and long-term, steady cashflows. It did well in the last decade thanks to its yield prowess and, courtesy of being one of the best inflation hedges around, stands to continue to do well in our high inflationary world.
Those investors that have bet on it – like OMERS, which has 20 percent and counting allocated to the asset class – are finding themselves very happy indeed. “It always felt like low inflation and low interest rates were an aberration,” Blake Hutcheson, the Canadian pension’s chief executive, told The Economist in December. “We’ve been preparing for a day that looks like today.”
With infrastructure GPs seeking considerable amounts of capital in a tougher fundraising market, their success will partly depend on their ability to convince LPs that, regardless of wider private markets cuts, infrastructure continues to be an investment to keep.
Zero in on nascent climate allocations
The strength of energy transition fundraising was one of our Themes of the Year, and for good reason: as the mega-trend forcefully establishes itself, more and more LPs are allocating capital to it.
In fact, interest in climate investing – a true TINA in our book – has reached the point where a growing number of LPs are mulling the creation of dedicated climate allocations. Given the need, this makes sense to us, especially if it helps insulate climate investments from the ups and downs of public and private market allocations.
To our mind, though, energy transition infrastructure is the beating heart of climate investing. As such, it is very much the domain of asset class practitioners, who would do well to zero in on these nascent climate allocations. That would help save them from being waylaid into poorly conceived cross-asset-class funds – a bad idea – or ill-defined ‘ESG vehicles’ – a worse one.
Take a closer look at corporate infra
Globalisation was once an unassailable TINA. The covid pandemic and the supply-chain disruption it brought gave it its first major wobble – the Russia-Ukraine war, the ensuing focus on energy security, and growing geopolitical tensions have sealed the deal and knocked it off its perch.
With the reshoring and ‘friendshoring’ of industrial policy, corporate infrastructure deserves a closer look. For example, are factories infrastructure? Brookfield seems to think so, if they’ve got Intel inside. Lazard agrees, as it made clear in its November whitepaper.
Corporate infrastructure won’t be for everyone. But the idea that investments in the infrastructure that large corporations need to function can be structured to have similar characteristics to traditional infrastructure investments is not as far-fetched as it first seems.
Not in 2023, at least, where there is a genuine necessity for a lot of invention.