ESG | LGPS Institutional Masterclass
1 week ago
Learning: UnstructuredJames Thelwell, Portfolio Manager, Alternatives, discusses the key characteristics of Infrastructure Investments, how Infrastructure has been affected by COVID-19 and what opportunities and risks he sees over the next year.
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yeah. Mhm mm. Infrastructure is a physical equipment and facilities needed for society to function. There are many different ways of defining infrastructure, but the main types are energy, transportation, utilities, social and digital infrastructure can be big and small. Everything from Heathrow airport. So the smart meter in your kitchen covered it can also be new and old. Everything from new fiber lines being built today. The hydro power plants built in the 1920s. Mm hmm. Mhm mm. We look for certain characteristics in our infrastructure investments, something of a tick box approach. These characteristics are high barriers to enter monopolistic positions. Long term contracted cash flows, inflation, linkage, essential services and uncorrelated returns to the general economy. A recent investment that we made was into sleep food, renewable energy plants. This project had a number of these characteristics, including long term inflation linked cash flows and also had a positive dSG impact. Uh huh. Infrastructure can be split into Costco Plus and value added core infrastructure benefits from a number of the characteristics mentioned earlier. These cents off. A lower returns as they are attractive to many different infrastructure buyers. Value added infrastructure tends to be more complex and involves greater risk. This enables greater returns. We tend to pick specialist managers to invest into value add infrastructure to ensure that this risk is managed in an appropriate way. A mix of cocoa plus and value add makes for a well diversified portfolio. Uh huh. Mhm. It's been a very different story for the different sub sectors of the infrastructure market. Digital infrastructure has really proved itself as the four futility is just as important as water, electric and gas in people's homes. Now, Energy plants and utilities remained stable during the pandemic have showed good resilience over the past 18 months, although there were some short term hits in power prices at the start of the pandemic transportation assets such as airports have obviously struggled during the pandemic of the lenders and other stakeholders have remained supportive so far. Yeah. Green infrastructure along with the right public policy and changing consumer behavior. The cornerstones of decarbonization, huge investment is required in electricity generation, distribution, transmission and storage. As we look to electrify much more of our heat and transportation networks. Conversely, investment in traditional energy such as midstream oil and gas and liquefied natural gas is becoming much more difficult and we are challenging our manages to the ultra conservative when considering the stranded asset risks in these sectors. Yeah, mm. There are huge opportunities available to invest in the energy transition and the digital revolution. And these will be a key focus for border to coast over the next 12 months, risks remain around the recovery from Covid and how quickly if at all some sub sectors of infrastructure returned to normal. Yeah.