Taj: From a listed-equity perspective, we do not go into the pro- ject-by-project regulation detail, we invest in companies that do it for us. Our focus tends to be on broad-based regulations, such as how the network returns are set, how often and what the parameters are.
I can imagine that on the private side there are only a few deals you can work on at any point in time, because you have to understand every detail. Whereas on the listed side we can scale up quickly because we do not need to go into that level of project detail. We can still have a view on regulation, but we are able to invest across assets, across geography more easily. It is easier to have a diversified portfolio of assets, whereas in the private world, it takes a long time to get up to speed to un- derstand all the details, so this is a different way of investing in the space. Romashkan: It depends on whether you are a passive or an active investor. Publicly listed equities will probably fit some- one who wants to be a passive investor in infrastructure, whereas pension funds tend to start moving more towards the Australian and Canadian model. That’s being an asset owner, so they can exert control, governance and then through that can come the implementation of various ESG and responsible investment initiatives into the company by being active. Taj: To be effective at doing that, you need to be a big fund. It is
difficult for smaller schemes to get that expertise and the time to get involved at that level of detail and to understand what to focus on from a governance point of view.
It is complex if you are not a large player and you want to get involved in infrastructure. It is a tall task. Foucoin: From a lender’s perspective, another way to gather the data and information we need from our investments, regard- less of local regulations, is to negotiate the right covenants with the sponsors. For instance, we have been able to negotiate ESG covenants aligned with our own reporting standards in some of our transactions. This is pretty powerful and hopefully some of the provisions negotiated for our recent investments can be replicated going forward and becomes more standard in the market.
What returns are infrastructure assets yielding? Foucoin: We are a relative value investor, so when we invest in a piece of private debt it needs to generate a premium above equivalent public bonds of the same duration, credit quality and in a similar sector. This is the framework we use to price infrastructure debt transactions. Dusch: One measure of performance is the spread we generate. Our senior investment-grade portfolios deliver a 250 basis points (bps) margin over base rate. In the Junior BB space, it is 550bps.
Scarcity of assets in the renewable space has been a barrier for quite a
while. Lewis Vanstone, Railpen
22 December – January 2023 portfolio institutional roundtable: Infrastructure
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