The scale of global infrastructure investment demand is enormous, and there is a growing need to replace and expand international infrastructure including all parts of the energy supply chain and a wide array of public services such as roads, railways, airports, and communications networks. Initiatives in these areas have become more difficult due to a reduction in traditional public funding and weakened economic conditions in many regions of the world. These resource issues have created a heightened need for experienced private capital.
We are committed to helping to meet this resource imbalance by investing in infrastructure assets on a global basis. Our goal is to achieve returns through the acquisition and operational improvement of infrastructure assets, which are important to the functioning of regional and local economies. We look to use these investments to generate current income and capital appreciation for investors in our funds.
Our strategy is to seek infrastructure investments with limited downside risk. We seek to drive value creation through distinctive sourcing, deep operational engagement, and active stakeholder management. We believe this strategy leads to value-added returns for our investors.
We are one of the world’s largest infrastructure investors. We own and operate assets across the transport, data, utilities and midstream sectors with a focus on cash flow stability and resilience.
Our portfolio, grounded in 120 years of investment experience, provides diversified exposure to scarce, high-quality businesses with significant barriers to entry.
ASSETS UNDER MANAGEMENT
Systems involved in the movement of freight, commodities and passengers.
Businesses that provide essential services and critical infrastructure to transmit and store data globally.
OPERATIONAL TELECOM TOWERS AND ACTIVE ROOFTOP SITES
OF FIBER OPTIC CABLE AND BACKBONE
Regulated or contracted businesses that earn a return on asset base.
ELECTRICITY AND GAS CONNECTIONS
NATURAL GAS PIPELINE
ELECTRICITY TRANSMISSION LINES
Assets that handle the movement and storage of commodities from a source of supply to a demand center.
NATURAL GAS STORAGE
NATURAL GAS PROCESSING PLANTS
The Infrastructure Universe
Infrastructure assets are the networks and systems that provide essential services, facilitate economic activity and enable the movement or storage of goods, water, energy, data and people.
They include, among others, utilities (electric, gas and water networks), renewable power assets (hydro, wind and solar generation), transport assets (seaports, airports, toll roads and rail), midstream networks (pipelines, processing and storage), data infrastructure (telecommunication towers, data centers and fiber) and social infrastructure (hospitals, schools and public facilities).
These assets exhibit similar key characteristics. They are capital-intensive with high barriers to entry, have low demand elasticity, have a long operational and useful life, and generate relatively stable long-term cash flows.
Despite on the surface looking similar, virtually no two infrastructure assets are alike. They span the globe, cover many different sectors, are at different stages of project lifecycle and vary widely regarding revenue frameworks, cash flow profiles and risk profiles.
Defining the Risk Profile
What distinguishes core infrastructure investments is their lower risk profile relative to other infrastructure investments. For core infrastructure investments, investors must look for essential assets with specific attributes that we believe make a core infrastructure investment more resilient in any economic environment (the image below).
Key characteristics include:
Essential Services or Goods
Plays a critical role in the economy in an industry with high barriers to entry.
Long-Term Useful Life
Has a long productive life under perpetual ownership or long-term concession agreements.
Primarily in developed markets, such as North America, Western Europe and Australia.
Has sustainable, high operating margins supporting a majority of the returns from current yield.
Stable Cash Flow Profile
Has predictable revenues supported by regulatory frameworks or long-term contracts that mitigate price or volume risk with highly creditworthy counterparties.
Includes direct or indirect inflation escalators, or embedded growth.
Has an established operating history with less inherent operational complexities and assets with highly cash-generative characteristics that provide greater revenue visibility.
Capital Structure Stability Is a conservatively capitalized business with nonrecourse financing and investment-grade credit metrics.
The Portfolio Benefits of Core Infrastructure
Core infrastructure assets tend to be resilient, with consistent performance at all points of an economic cycle. This is true when times are good, but it is more evident in times of market disruption.
What Are the Key Risks?
Given the characteristics of core infrastructure investments, two key risks are regulatory risk (for regulated assets) and counterparty risk (for the long-term contracted components).
To mitigate these risks on the regulatory side, investors can look for a track record of a stable and transparent regulatory environment that fosters economic activity. For counterparty risk, looking for highly creditworthy counterparties can help ensure a higher likelihood that the contracts will be honored. Focusing on lower-risk countries that have a long-established rule of law is another way to potentially mitigate counterparty risk.
These are important mitigating factors because they act as the first line of defense. Ultimately, however, the protection is the essential nature of the infrastructure asset itself. Lower-risk core assets are critical pieces of infrastructure that simply cannot be shut off without a functioning alternative. This means that regardless of what might happen to any single consumer in the supply chain, other market participants should step in and utilize the infrastructure so that the economy continues to function.
Unlike other infrastructure assets, core infrastructure assets generally have limited or no GDP, commodity price and volume exposure.
A Cornerstone Long-Term Investment
The demand for lower-risk core infrastructure continues to be very strong as investors view the characteristics of these investments as providing several portfolio benefits, a good match for their liabilities and the potential to deliver attractive risk-adjusted returns.
Governments and corporations continue to seek private sector solutions to ever-increasing debt loads as borrowing costs normalize from historical lows. Many traditional utility and telecom operators, for example, are inviting institutional investors to invest alongside them in highly contracted or regulated assets. They use the proceeds to meet capital requirements, such as reinvesting in older operating assets or to help them meet decarbonization targets. Across the infrastructure universe, we expect traditional operators to look to partner with investment managers that can provide capital and operating expertise to meet their goals. All this means that core infrastructure can be a cornerstone investment in portfolios for many years to come.
When considering an allocation to a core infrastructure strategy, we believe investors should look to identify investment managers that use a definition of core infrastructure that is consistent with their risk and return objectives. These managers should have operating expertise in a variety of sub-sectors and regions with intimate knowledge of various regulatory frameworks, as we believe this will help them underwrite and later manage these assets. A lower-risk core infrastructure strategy should deliver a consistent cash yield with attractive risk-adjusted returns—regardless of economic cycles.