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HomeLatest NewsAn anti-inflation vaccine: "Investment in infrastructure acts as protection"

An anti-inflation vaccine: “Investment in infrastructure acts as protection”

Date: March 3, 2024 Time: 18:51:03

Investment in infrastructures can be one of the great unknowns in conventional markets. Under a panorama such as the one that currently appears, the question arises as to whether there are real possibilities of capturing stable returns and with a management adapted to risk. Soti Calochristos, director of infrastructure investments at the British manager abrdn, reviews in this interview what is most important in this sector.

Q: During the years when rates were low, it seemed that investing in infrastructure had become a good alternative to obtain a stable and secure income. With the rate hike, have they lost some of their appeal given the returns that investment-grade issues are starting to offer, including some sovereign debt issues?

A: I think infrastructure plays an important role in building portfolios. Obviously, in high interest rate environments, bonds can be very attractive. But I think that infrastructures can be just as attractive because of their inherent characteristics. High interest rates often mean high inflation and infrastructures often have strong downside protection.

This means that in high inflation environments, infrastructure can protect investors from this situation and still provide stable returns and generate returns, which is very important. Ultimately, infrastructure should be an asset class that can weather tough times and still perform well. And as part of building the portfolio, I think it’s very important to have assets that can evolve with the times and make sure that you can navigate any period, negative or positive.

Q: It’s very interesting, as everyone sees fixed income as the traditional way to earn a stable income.

A: And this can also work. It is always difficult to predict how the market will move and when interest rates will come down again and if they will reach the same level as a few years ago. But again.

Q: What is the attraction of investing in infrastructure in the long term for investors?

A: We are long-term investors. We usually invest 10, 12, 15 years because that is how it is during which you can get the most out of the infrastructures. Typically, these investments are long-term. If we consider solar panels, for example, it must be taken into account that the life of these assets is 25-30 years. Therefore, what you really want is to be there to be able to reap its benefits.

Q: Why invest only in Europe?

A: I think the reasons why we really like Europe is because it’s probably one of the most developed regions in the world for infrastructure, there are a lot of opportunities, a lot of different jurisdictions, all with different types of goals and at different levels or different facets. of its growth, so there are many opportunities. For us, infrastructure is a very attractive asset class because we find stable cash flows, they are linked to inflation, they guarantee strong downside protection. All these opportunities are found in different regions of Europe.

Q: Is Europe much more attractive than any other part of the world?

A: I wouldn’t say it’s more attractive than any other region. I would say that it is perhaps a little further along, which means there are more opportunities. In our case, it is also what we know, it is what we are best known as a team. That makes it a little bit easier to find the right type of investment opportunities for us.

Q: In what types of infrastructure do you see the most potential?

A: We are a generalist fund, so we will invest in what we consider to be the four main verticals: utilities, energy, transportation and digital. In the previous two, which have already been fully deployed, we have invested in small-scale hydropower in funds Norway, solar panels in Poland, district heating networks and regulated utilities in Finland, trains in the UK and Germany, fiber in the UK and also in Spain. What you see is a very varied mix. We’ve tried to reach all of those verticals and invest in them equally or where we find the right opportunities based on, let’s say, the cycle we’re in.

Q: We see that the European Union is trying to curb the deficits of European countries, which have grown after the extraordinary measures to deal with Covid. Do you think these less cheerful spending policies are going to discourage governments from investing?

A: I guess it’s hard to see that it won’t be, but I don’t think it’s going to be as bad as we imagine. As a Greek I am obviously familiar with government deficits and having to manage them very carefully. But what we have seen is that the European Union has come together to ensure that recovery funds are available to all its members to ensure that they can achieve their ambitious long-term goals. So while I think it’s not so much that there are no funds available, you have to make sure that the funds that are available are invested appropriately and in the right areas to help each country grow and develop in the areas that it needs. I think that will be the main objective of governments in the coming years.

Q: So private capital is necessary, I guess, in this scenario…

A: I think it is absolutely necessary and that private capital has a role to play, especially in the area of ​​infrastructure. These are key public services to end users and there needs to be a very clear level and quality of service and obviously private capital can help. Governments must achieve their long-term goals, which are quite ambitious, be it decarbonization or electrification. So private capital like us is really critical in terms of helping support and invest in the key areas of infrastructure.

Q: Your fund is very focused on ESG. Because?

A: Yes, our fund is governed by Article 8 of the Sustainable Financial Disclosure Regulation (SFDR). So ESG is front and center of what we do and it’s at the forefront of our thinking. When we spot an opportunity and start looking for potential investments, we start to assess ESG aspects as one of the key criteria and think about it throughout the execution of the trades. And then, as active managers, it’s very important that what we’ve learned as part of our due diligence, that we put into practice from an environmental, social and governance perspective, and having the right policies in place is just as important. So it’s very important to us and it’s something that we take very seriously throughout the process and throughout the life that we invest and hold assets.

Q: We are talking about a platform that has three funds, two of which are closed. This is the third…Are you thinking of our fourth or fifth fund?

A: I would say yes, of course. At times we are in the process of raising the third, and it is on the right track. We see that our investors are keen to continue investing in infrastructure, so we don’t see why there won’t be a fourth, fifth or sixth. We have to keep up with the times and the markets, but we hope to keep going because there is a lot of appetite for infrastructure. We’ve seen a lot of capital flow into infrastructure in recent years, so it’s about finding the right opportunities. And as he said, the definition of infrastructure has evolved over time, so it’s just making sure that you stay with a strategy that has worked, but also trying to develop and adapt.

Q: What type of investor is interested in this type of fund?

A: Usually these are long-term patient capital, pension funds or insurance companies who really need stable investments where they can leave their money to a manager with a good track record and who want to invest for a long period of time. time

Q: By the way, one of the last acquisitions of the fund was a project with Digi to expand fiber lines in Andalusia from 1 million homes to 2.5 million.

A: We are very proud of the transactions and partnership with Digi, a very reputable company that has proven itself in Romania. And they have arrived in Spain. And they’re really looking to demonstrate how they can bring here what they’ve learned there. And we see that, ultimately, it is something very attractive to end customers. We are looking for a long-term partnership. We are looking for operators to work with, someone who is established, who knows the market.

We really like the fiber space because, although Spain is one of the most developed markets in terms of fiber across the board, with the highest quality at a more profitable price, I think that’s very important. We seek to be able to align ourselves with Digi’s strategy, which seeks to provide the highest quality service to end customers at an affordable price, which in the current market environment is very interesting.

Have you invested in Spain before?

The partnership with digi is the first. It’s a very attractive market for us and that’s why we’re here looking for the right type of opportunity. We hope it will be the first investment, but not the last.

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Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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