People love asking the question about the Trump Administration’s latest infrastructure plan as it’s become known in the hope it’s going to lead to more investment opportunities in the sector. Amid all the noise around public policy, we really have our eye on the US economy, specifically trade and GDP, and where economic growth is heading over the next few years.
There might be a lot of noise coming from the United States around US President Donald Trump’s slated $US1 trillion infrastructure plan, but I’m actually more focused on what’s happening on the economic growth front than what’s being said in the public policy arena.
Sure, spending of this magnitude, along with the greater willingness for government here to partner with private enterprise – plans that were canvased during US President’s campaign speeches – would be a great boon for infrastructure investors globally.
But we’re not waiting for the public policy pieces to fall into place before finding and investing in opportunities in a country that’s clearly ripe for new investment in outdated infrastructure.
McKinsey & Co’s Global Institute data highlights the massive shortfalls in infrastructure spending – power generation, roads, telecom (communications) and water utilities are at the top of the list – indicating these areas globally and in the Unites States will need capital to be invested in coming years.
Our latest acquisition of ITS ConGlobal, which closed in October after a two-year process, highlights the type of asset and the style of investment we are pursuing in the United States.
ITSC is basically a service-based business that handles container lifting between various modes of transport like rail, truck and ship. It’s not considered what’s called “core” infrastructure but it’s an asset which importantly has many of the characteristics of infrastructure including high barriers to entry given the industry focus on safety and operating history.
This acquisition is really an indication of our desire to take US economic exposure as well as our belief in the importance of intermodal and logistics assets in the transport ecosystem. In this way it show’s we’re probably less focused in the near term on the political environment and more on the growth prospects for the local economy here over the next three to four years.
The other thing I think we’re doing different from some other investors in what might be considered core infrastructure assets – toll roads, bridges, schools, hospitals and the like – is we’re buying and valuing assets with the view to actively managing them, more akin to a private equity-style of investing, where we will work with the management teams to improve operational efficiency manage costs, implement strategic processes.
The more traditional infrastructure approach might involve asset owners such as pension and sovereign wealth funds trading core assets for a return that’s somewhat commoditised in the mid to low single digits.
We’re seeking to acquire assets with a view to what we think we can achieve through prudently managing costs through using our understanding of the operating models of these individual companies.
In this sense it’s no longer a passive asset play as much as its more about finding companies with operating leverage and with management who have equity as well as strong incentives for leadership and board members and the like.
This style suits what we call middle market infrastructure – the ITSC deal was speculated to be worth $500 million – but it also lends itself to exploring new areas where the bounds of infrastructure investing are stretching.
Communications is one of the areas which combines traditional infrastructure characteristics with potential to leverage economic growth.
I see telecommunications as the energy for the 21st century. The power generation eco-system has developed and will increasingly rely on micro-grids and battery storage to manage energy requirements. That’s the way of the future, and is similar to the way renewables became mainstream from their infancy 30 years ago.
Similarly, as the digital realm expands, cell tower technology, fibre optics, TV and radio digital broadcasting networks are among the assets finding their way into the field of vision and indeed into the portfolios of infrastructure funds.
In the energy and utilities context – while electricity stations and power plants might have once marked the boundaries of the asset class – renewable energy technology; energy stabilisers designed to manage supply and demand peaks; storage technology; distributed energy generation are emerging as the frontier assets.
People love asking the question about the Trump Administration’s latest infrastructure plan as it’s become known in the hope it’s going to lead to more investment opportunities in the sector, but the truth is we’re yet to see any sign of how it will open up opportunities on the ground.
Amid all the noise around public policy, we really have our eye on the US economy, specifically trade and GDP, and where economic growth is heading over the next few years.
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