04 / 04 / 23 - 3 minute read
From the sun-kissed beaches of Cannes to the bustling metropolis of Berlin, March was a key month for networking in the world of real assets. No sooner had leading figures and stakeholders from the world of real estate left behind the carnival that is MIPIM than attention turned to the next big event – the Infrastructure Investor Global Summit in the German capital.
The events offered the opportunity to get a feel for what real asset investors are focused on and for PATRIZIA to share its outlook on how it can support clients drive returns and create value for their portfolios.
Having heard from PATRIZIA Head of Global Investment Strategy, Research & Investment Solutions, Mahdi Mokrane, on his takeaways from MIPIM, now we turn our attention to the Summit, with PATRIZIA Infrastructure Managing Director, Tom Maher – one of 14 attendees from the company at the event – providing his four takeaways from the event…
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There’s no shying away from it. Allocations are taking longer, the quantums are smaller and ‘re-ups’ – that is, follow-up funds for existing clients – are being prioritised. It is also worthwhile noting that this is being felt broadly across the infrastructure market – from the mega funds through to the sector and geographic specialists.
To add the challenging market environment, investors arriving at the Hilton in Berlin for the Summit were still digesting the fresh news of Credit Suisse’s merger. Despite this, overall interest in infrastructure remains exceptionally high. Most investors indicated that they continue to expect to make further commitments to the asset class in 2023.
The Summit endorsed the view that interest in infrastructure remains high. For one thing, it was the best-attended Summit to date and also had the highest number of investors on record.
The event is now so large that it has now outgrown the facilities in Berlin and next year will be held in a larger venue in Barcelona.
Tom Maher, PATRIZIA Infrastructure Managing Director
Investors’ return expectations in the current climate reflect the higher cost of capital for investors. Specifically, higher interest rates naturally result in an increased appetite for higher returning strategies.
With these raised expectations comes a shift away from core and super core strategies to core-plus, value-add and opportunistic investments. These strategies are able to deliver investors a real return above risk-free rates. Within this context, there is also an increased focus on managers demonstrating how they can add value. This is something we do at PATRIZIA with our mid-market infrastructure investments. A recent example is our investment in Biomet which provides bio-LNG [liquified natural gas] to help decarbonise Italy’s transport industry.
In infrastructure, this has opened the door for infrastructure debt, with floating rate debt very competitive against core infrastructure investments. High-yield infrastructure debt has remained a resilient market area with target returns of 8-9% comparing favourably with other strategies. Why take the downside risk for core returns when such alternatives exist?
ESG concerns are, and will remain, pressing topics for investors and we see this with high levels of interest in assets delivering on the energy transition.
Decarbonisation and the energy transition is just one of the megatrends we see in infrastructure, with digitalisation, demographic change and urbanisation, and climate change also key drivers of the evolution of the infrastructure asset class. All these are aligned with investors’ approach to infrastructure, with digital infrastructure, in particular, seeing high levels of interest.
Being able to deliver a strategy that aligns with the megatrends is really important. Our aforementioned investment in Biomet is delivering in the decarbonisation/energy transition space and our recent and our recent double fibre deal in Spain aligns well with the digitalisation megatrend; just two examples of PATRIZIA’s alignment with these megatrends.
As these takeaways demonstrate, infrastructure does not exist in a vacuum. The challenges and opportunities in real estate, as illustrated by Mahdi in his post-MIPIM article, are broadly similar to those in infrastructure, as part of the wider real assets sector. The economic environment, as well as the geopolitical climate, is the same for us all.
Naturally, though, some nuances particular to infrastructure exist. As a leading partner for global real assets, PATRIZIA is able to call upon its 39 years’ experience of offering opportunities for institutional, semi-professional and private investors, with dedicated teams in infrastructure and real estate able to support our clients’ needs across the sector.