Investing in Infrastructure. IPE in Iceland, Reykjavik, October 2nd 2018

Transcription

1 1 Investing in Infrastructure IPE in Iceland, Reykjavik, October 2nd 2018

2 Agenda Industriens Pension in short Infrastructure as an investment object Why invest in infrastructure assets? How do Industriens Pension invest in infrastructure? What is required to invest in infrastructure assets? Lessons learned 2

3 Industriens Pension in short 3

4 Industriens Pension a few facts Established ,000 members 8,000 companies Contributions DKK 9.2 bn (2017) Payments DKK 5.1 bn (2017) Assets under management DKK 165 bn (EUR 22 bn) 200 employees - 30 in investment functions 4

5 Industriens Pension s investment assets Assets under Management DKK 165 bn Credit Bonds 23% Other 2% Alternative Investments 26% Total: DKK 42 bn Real Estate 5% DKK 8.4 bn Private Equity 10% DKK 16.5 bn Treasury and Mortgage Bonds 22% Listed Stocks 27% Infrastructure 11% DKK 17.5 bn 5

6 Infrastructure allocation and return DKK bn Allocation Return years years 1.8% - 0.9% 9.3% 8.1% 6.2% 7.0% 14.0% 11.4% 11.0% 8.4% 10.4% 7.6% % - 3.3% 1.7% 13.2% 10.9% 3.4% - 6

7 Infrastructure as an investment object 7

8 Infrastructure what kind of assets? Essential to society or the economy Operate within regulated environments Insulated from business-cycle fluctuations Monopolistic or high barriers to entry Generate stable, predictable cash flows often correlated to inflation Economic infrastructure Social infrastructure Transport Energy Utilities Communikation Bridges and Electricity Power plants Satellite systems Hospitals / schools tunnels distribution Parking Energy storage Gas distribution Antennas Prisons facilities Pipe lines for oil Water Toll roads Cable networks Road lightning and gas distribution Railways / Renewable energy Waste water Administrative Fibre networks stations (wind, solar, hydro) services buildings Extraction of raw Ports / materials Waste treatment Mobile network Crematorias airports (gas/oil/metals) 8

9 Why invest in infrastructure assets? 9

10 Why infrastructure? Why include infrastructure assets in the portfolio? Risk/return impact of marginal increase of asset class Increase expected return of investment portfolio Diversify (reduce) total risk of investment assets Return from infrastructure assets are less cyclical Increase members risk diversification Increase robustness of investment assets Exposure to identifiable risks! Prudent investment strategy! Source: Morgan Stanley 10

11 How do Industriens Pension invest in infrastructure assets? 11

12 Two infrastructure asset classes Non core infrastructure Risk level value add / opportunistic Investments indirect via funds Wide use of co-investments Business model: Invest => increase value => exit Life time for funds years. Core infrastructure Risk level core Most often direct investments Long term predictable and stable cash flows Investment horizon infinite or very long. 12

13 Why enter direct investments in core infrastructure? Long lasting low interest rates => expected return from bonds low Core infrastructure assets have long bond like cash flows Harvest of premium for illiquidity Premium for exposure to infrastructure-specific risks Risks are mainly operational and well defined Existing IP experience and knowledge of infrastructure assets and teaming up with relevant investment partners But: No operational competences => Need operational external manager on every directly owned asset 13

14 Infrastructure asset allocation (1) Geography Type 14

15 Infrastructure asset allocation (2) Distribution of infrastructure assets Top 10 asset type Southern Water 6.2% Gode Wind II 6.1% Core infra Core infra 4.6% Terminal Investment Co-investment 3.8% Welcome Break Core infra Key figures: # managers: % Butendiek Core infra Largest asset: 6.2 % Top 10 assets: 36.1 % 2.9% Hidrovias do Brasil Co-investment 2.8% GIP II Blue Co-investment 2.7% Sage 2.2% 1.5% Japan Solar Antin GSR Core infra Co-investment Co-investment 15

16 What is required to invest in infrastructure assets? 16

17 Legal Accounting Risk Investment Investment proces Team decision Signing, filing, and implementation in systems 1. Identification 2. Recommendation 3. Approval 4. Execution 5. Management 6. Exit Relevant fund/investment identified Intro-meetings IC Approvement Paperwork Monitorering Collection of information Internal reporting Internal discussions Due diligence Write recommendation Negotiation Risk assessment System issues Risk reporting Internal adm. check list Check operational issues Authorities reporting Value assessment Check corporate structure Liquidity Compliance Book keeping and control Financial advice FATCA/KYC/ Money laundering Company administration 17

18 Low Normal High Critical Lav Normal Høj Kritis k Risk identification Risk overview Risk type Description of most important risk factors Operational ESG Environment xxx Operational Opex xxx xxx Strategic Regulatory Subsidies xxx Management Manager xxx Improbable Usandsynligt Not likely Ikke Not sandsynligt likely Can Forventeligt happen Forekommer Expected 1 ESG 3 Regulatory 5 Market 2 Operational 4 Strategic 6 Macro econ. Market Market Sale prices Financing costs xxx Macro economy Interest rates Inflation xxx 18

19 Assessment of market value Listed companies Private companies Private utilities Private real assets 100+ price observations 20+ price observations 5-10 price observations 0-2 price obs. e.g. listed energy company e.g. private industrial company with listed and unlisted peers e.g. regulated water utility e.g. off shore wind park 19

20 Lessons learned 20

21 What have we learned? Infrastructure investments have had a positive impact on the total risk/return characteristics. Return has been higher than expected. We have had no single big losses on investments. Significant investment cost savings is possible, especially by co-investing. It is relevant and possible to invest directly in core infrastructure assets by combining own competences with external partners. Growth in portfolio means growing requirements to documentation, use of support systems, and human ressources. Direct investments require ressources for asset management. You don t succeed every time 50% of Board-approved direct investments have not been completed. Networking and relationships are important for sourcing. 21

22 Thank you! 22