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CONTENTS
EUROPEAN INFRASTRUCTURE GFM Special Report Jul 2017
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In this issue…
03 Infrastructure trends shaping
tomorrow’s world
By James Williams
06 The ongoing industrial transformation
Interview with Frederic Palanque & Philippe Taillardat, Conquest
Asset Management
11 Greenfield and brownfield investing
Interview with Martin Lennon, Infracapital
EUROPEAN INFRASTRUCTURE GFM Special Report Jul 2017 www.globalfundmedia.com | 3
European infrastructure is an exciting
space today for investors. Mega trends,
such as digitalisation, decarbonisation, and
changing city demographics (in terms of
transportation and mobility) are pushing
countries to re-think their infrastructure
systems and re-engineer them to cope with
21st century living.
Within the energy space alone, this
means reducing reliance on coal fired power
stations, decommissioning nuclear power
stations, and a continued commitment to
investing in renewable energy sources.
According to the International Energy
Agency’s World Energy Outlook 2017, the
proportion of total global electricity generated
by renewables will increase from 24 per cent
in 2016 to 40 per cent by 2040.
This will be vital if the developed world
is able to support the expected rise in
adoption of electric vehicles – those used
by households as well as corporates as
they overhaul their transport fleets – which
will place significant demands on energy
grids and require substantial increases in
electricity production.
Renewable energy investing
As BlackRock highlights in its latest report,
The global energy and power transition:
implications for infrastructure investors*,
energy and power (including renewable
power) accounted for 62 per cent of global
infrastructure investment activity in 2017,
equivalent to USD177 billion. Total energy
investment worldwide in 2016 was more
than USD1.7 trillion, or 2.2 per cent of global
GDP, according to the IEA, with energy
infrastructure accounting for a significant
percentage.
OVERVIEW
Infrastructure
trends shaping
tomorrow’s world
By James Williams
EUROPEAN INFRASTRUCTURE GFM Special Report Jul 2017 www.globalfundmedia.com | 4
OVERVIEW
“If you are an infrastructure investor and
looking to deploy capital, then fish where
the fish are,” says Alan Synnott, Global
Head of Research & Product Strategy for
BlackRock Real Assets. “That is why you
are seeing increased investor interest in
global power and energy. At the same time,
the sector itself is going through significant
fundamental change. There is massive
technological innovation taking place, which
has completely changed the cost picture
for renewables and for the production and
distribution of natural gas.
“That is replacing incumbent energy
infrastructure, which in Europe is nuclear
and coal.”
Over the last decade, infrastructure has
emerged as one of the fastest growing
allocations for institutional investors.
At the beginning of each year, BlackRock
produces the BlackRock Rebalancing survey
where it surveys 200 or so of its top global
relationships representing over USD7 trillion
in investable assets and asks what they
intend to weight up and weight down across
alternatives for the forthcoming 12 months.
This year, 58 per cent said they planned on
increasing their allocations to real assets,
which includes infrastructure; a figure that
was some way ahead of Private Equity (33
per cent) and Real Estate (32 per cent).
“Within the infrastructure space there are
lots of positives; it is a transparent asset
class, it has lower correlation to traditional
markets (equities and fixed income). The
negatives, however, are access to deal
flow and compressed returns. Against that
backdrop we explain to investors about
what is happening in four key sectors of
infrastructure – power, energy, transport
and social,” explains Synnott, one of the
co-authors of the global energy and power
transition report, along with Jim Barry, Global
Head of BlackRock Real Assets and Mark
Florian, Global Head of BlackRock’s Energy
& Power Infrastructure team.
In the European market, he says there has
been a growth of buy and hold strategies
for operating renewable power projects,
while some investors preferring a higher
return for more risk are looking at greenfield
opportunities, such as offshore projects (i.e.
wind farms).
“The investment structures used in Europe
are changing and many European investors
are looking not just at European investments,
but global investments. The scale of projects
in Europe can be smaller than they are
globally, which is why using capital on an
unlevered basis can be more efficient for
institutional investors; it means they can
deploy more capital in a single diligence
exercise, to a single investment vehicle.
“As a result, we have innovated and
introduced 20-year funds that use unlevered
equity. These funds do not rely on any
project finance. We invest on an all-cash
basis in European renewable power projects.
The investment goal for investors in these
funds is to accept a more moderate return
but to buy and hold assets on a long-term
basis for income generation,” explains
Synnott, confirming that BlackRock currently
manages approximately USD5 billion in
equity assets within renewable energy.
Martin Lennon is co-founder of
Infracapital, one of the UK’s leading
infrastructure investment managers. He says
the IEA’s 2040 forecast figure for renewable
energy growth is well understood in the
marketplace. But he notes that the increase
of intermittent power generation capacity has
consequences on the broader market as we
shift more towards renewables.
“What is the back-up solution when the
wind isn’t blowing or the sun isn’t shining?”
asks Lennon. “We are still just at the early
stages of energy storage using batteries. It’s
an industry we think will go from strength
to strength although we’ve not invested
in the storage space yet as we’ve yet
to see a business model that works for
us; but that will no doubt change as it is
an important aspect of the shift towards
renewable energy.
“One also needs to think about the
wider implications of what renewable
energy is replacing. In certain parts of the
European landscape there is still a very
“If you are an infrastructure
investor and looking to
deploy capital, then fish
where the fish are.”
Alan Synnott, BlackRock Real Assets
8
Trusted Investor in Infrastructure
• Sustainable Energy and Utilities
• Transportation and Mobility
• Digital Infrastructure
ASTUTE I DISCIPLINED I
conquest.group
www.globalfundmedia.com | 6EUROPEAN INFRASTRUCTURE GFM Special Report Jul 2017
CONQUEST ASSET MANAGEMENT
Traditional European infrastructure is going
through a period of transition. Digital
communication technology and a push
towards sustainable energy production is
leading to a move away from a centralised,
regulated and vertical model to more
of a distributed, connected model that
scales laterally.
This is giving rise to a slew of new
investment opportunities in key areas such
as transport and e-mobility, sustainable
energy and digital communication as EU
countries seek out ways to upgrade ageing
infrastructure to respond to 21st century living.
One of the key components to making
this happen is having the right investment
partners to bridge the gap between
corporates requiring fresh injections of private
capital and institutional investors, keen to
invest in long-term, yielding real assets.
Conquest Asset Management is one such
partner. It was established in 2010 to offer
strategic and financial advisory services
to corporates. Then, in 2016 it added an
asset management arm, independent from
the advisory business line, to benefit from
the on-going industrial transformation
driven by corporates by establishing a
dedicated investment fund vehicle; in so
doing, introducing investors to some of the
most innovative investment opportunities
currently emerging.
Today Conquest is pursuing a strategy
which echoes some of today’s economic
mega trends to create a more sustainable
infrastructure market. Key sectors targeted
by Conquest include Energy & Utilities,
Renewables, Transport & Mobility and Digital
Infrastructure and Data Management.
“We are the new smart kid on the block
as asset managers but not in terms of
the team’s experience, which cumulates
decades of members having worked together
and even more regarding the team’s global
infrastructure exposure,” explains Frederic
Palanque, Director at Conquest.
“We bring a strong, in-depth industrial
view to an infrastructure sector that is going
through transformation. Our team started
in 2010 working as financial advisors to the
infrastructure sector. Some of our clients
are tier one institutional investors including
pension funds who started asking us not
only to advise but to manage on their behalf,
investments in sustainable real assets.
“This crystallised in 2016 with the
formation of Conquest Asset Management.”
Philippe Taillardat is Director at Conquest
and brings 25 years’ experience to the table,
his most recent position being Co-Head of
Infrastructure Investments Europe at First
State Investments. He explains that with its
close links to the industrial sector, Conquest
is uniquely positioned to advise institutional
investors on new investment opportunities.
“We harvest the unique relationship
we have with industrial players to source
proprietary deals. Instead of looking at just
plain vanilla infrastructure e.g. roads, ports,
highways, we go deeper into sub-sectors.
This is because our team is able to sit with
corporates to help them restructure their
balance sheet and they trust us because
we’ve done this with them for years.
“We ring fence the right investment
opportunity, which mirrors our investment
strategy and bring it to our institutional
clients,” explains Taillardat.
Conquest’s experience allows it to
develop insights and views on next
generation developments within different
sub-sectors which could become interesting
investment sectors. Palanque was formerly
the group head of M&A at Schneider
Electric, managing all its investments in
sustainable energy and overseeing the
The ongoing industrial
transformation
Interview with Frederic Palanque & Philippe Taillardat
Frederic Palanque, Director at
Conquest
Philippe Taillardat, Director at
Conquest
www.globalfundmedia.com | 7EUROPEAN INFRASTRUCTURE GFM Special Report Jul 2017
CONQUEST ASSET MANAGEMENT
important trend that Conquest are playing
close attention to.
Palanque explains that in addition to the
digital transformation, the underlying enabling
infrastructure needs to be upgraded as
well. It needs, he says, to be “upscaled and
upgraded” to cope with the digital revolution
unfolding.
“It will require a number of solutions,
which, when combined will provide the
necessary agility.
“First you have the electrical network. To
make it cleaner, people have heavily invested
in renewables. But the more you invest
into it, the more you disrupt the network.
In addition to this investment, you need to
start working with the networks to invest
elsewhere to maintain stability. This includes
areas such as storage but it could also
include upscaling grid substations.
“In parallel, electrical cars are going
to become more broadly used, which
will require a more decentralised energy
network and this again, will require additional
investment. Powering electric cars was not a
consideration in medium voltage networks in
cities. They were built to allow you to put the
lights on at home and switch on your TV.
“Charging electric cars will require using
a primary network, which is more of an
industrial scale network. This intermediary
network will need to be the one available
in the cities and suburbs to enable people
to charge and operate their electric cars,”
outlines Palanque.
Palanque’s argument is that on the one
hand, switching to cleaner energy supplies
will admittedly lead to increased investment
in renewables but that’s only half the story.
On the other hand, if European governments
want cleaner cities and transport, it will
have a huge impact on the existing
electrical network; one that will require huge
investment that the state alone cannot cope
with. It will need private capital working with
industrial capital.
“This is the proposition we bring to
investors: spotting investment opportunities
for our standalone vehicle and co-investment
vehicle, depending on the project and the
country, ahead of other asset managers. We
want to make sure the projects we select
are in the best interests of our investors,”
concludes Taillardat. n
transformation of the medium voltage grid
across the globe.
“On a day-to-day basis we speak with
global CEOs of infrastructure groups to see
how we can help to finance and support
the transition of the infrastructure sector. We
see a significant shift towards more digital,
more connected infrastructure; in the energy
space, in transportation (electric cars and
smart mobility), and certainly within digital
infrastructure. In one of my earlier roles at
Areva T&D, we invested in energy transition
from the formal energy grid to the digital grid
we are witnessing today,” says Palanque.
Conquest views the political decision by
Europe to change its power generation mix
by increasing the proportion of renewables
as one of the triggers for the digital
transformation. However, it is incumbent
upon the corporates to play their role.
Naturally, local regulators and governments
need to be on board but as Taillardat
stresses, “the corporates are key to making
this transformation happen”. “Initially it was
a political decision and what people didn’t
anticipate was the consequences this would
have on Europe’s electricity markets and
the need to change a vertically organised
network into a more lateral distributed
network,” says Taillardat.
Take electric cars as an example. This
requires charging points in the cities. The
issue today, however, is countries lack the
right distribution electrical network to support
these charging points.
“It’s a good decision to move to
renewables and electric cars but to get there
you need to make a lot of changes to the
existing medium voltage networks, which
requires a lot of capital,” says Palanque.
“The starting point was changing the
generation mix. Before you used to have a
limited and centralised generation plants to
produce electricity. Now you’ve got disperse
and multiple small generation plants, in
particular for renewables. But there are
reliability issues – when there’s no sun or
wind you’ve got no electricity and you find
yourself missing X per cent capacity. This
intermittency issue requires new solutions,
such as battery storage, and increased load
management.”
How to use digital to make energy
markets more efficient is also becoming an
EUROPEAN INFRASTRUCTURE GFM Special Report Jul 2017 www.globalfundmedia.com | 8
OVERVIEW
high dependency on hydrocarbon fuel
sources. There will be some real challenges
in terms of shifting from those to more
environmentally friendly fuel sources but I do
think it represents a large, long-term macro
trend for European energy infrastructure.”
Governments, regulators, corporate
stakeholders are all driving the trend towards
cleaner, sustainable energy. Infracapital
is well aware of this trend. One of its
investments, for example, is Eteck, which
uses deep wells and various carbon friendly
solutions to provide sustainable central
heating and cooling systems to residential
and commercial customers.
“Not only is Eteck responding to
government incentives, it is also creating a
valuable long term investment which has the
potential to significantly reduce the carbon
footprint of the Netherlands. It is a good
example of a whole new industry that has
come about as a result of the significant
trend towards increased reliance on
renewable energy,” says Lennon.
LNG import facilities
One important infrastructure opportunity that
will likely emerge in Europe over the coming
years, in response to a burgeoning natural
gas market in the United States – thanks to
the fracking of US shale reserves – is the
development of liquefied natural gas import
facilities.
BlackRock’s report shows that world
liquefied natural gas (LNG) imports are
projected by IHS Markit to more than double
by 2040, with Asia showing the biggest
growth. Some USD80 billion of investment
in East Asia will be needed by 2030 to keep
pace with the expected level of demand for
LNG imports.
There is only one LNG export facility in
the US, currently, although five more are
being built and are expected to become
operational by 2019.
Within a European context, like Asia, as
it transitions away from coal and nuclear
towards natural gas, it will need to build
import infrastructure just as the US is now
starting to build its export infrastructure.
“We just financed a power generation
facility called the Lackawanna Energy Centre
in Pennsylvania, which sits on some of
the cheapest natural gas in the US,” says
Synnott. “We are also seeing an evolution in
natural gas pipelines across the US – where
once they took gas and imported into the
country and distributed it, you now have
pipelines being built in the opposite direction
from the shale reserves to the export
facilities.
“There is a new technology called
‘liquefaction’ which allows you to super
cool the gas and transport it by ship,
which is also an investment opportunity (as
each liquefaction facility costs up to USD2
billion). From a European perspective, the
import facility, the re-gassification facility, the
pipelines and the distribution systems are
all future energy infrastructure investment
opportunities.”
In natural gas and renewables, therefore,
one can point to technology-driven
positive fundamentals, a supportive policy
environment and a significant pipeline of
investable opportunities in midstream and
downstream markets. With asset owners
increasingly looking for capital partners and
some looking to recycle assets, it is opening
up the door for European infrastructure
investors.
Not everyone, however, necessarily sees
investment opportunities in all areas of
renewable energy because they do not offer
the right return profile.
“I often hear about solar projects being
constructed on a zero subsidy basis
because the cost of solar panel production
has gone through the floor as technology
has improved,” comments Matt Evans,
Partner, Global Origination (Infrastructure
Equity) at AMP Capital. “You therefore have
to be quite careful about how governments
might evolve their views on technology over
the next decade and what that could mean
for future asset prices.
4
“I often hear about solar
projects being constructed
on a zero subsidy basis
because the cost of solar
panel production has
gone through the floor as
technology has improved.”
Matt Evans, AMP Capital
EUROPEAN INFRASTRUCTURE GFM Special Report Jul 2017 www.globalfundmedia.com | 9
OVERVIEW
“Corporates understand the need to
reduce their carbon footprint and to change
the way they’ve been operating for the
last 20 or 30 years,” comments Philippe
Taillardat, Director at Conquest, a European
infrastructure asset management business.
“If corporates switch to thinking about how
to deliver the same services, but in a way
that reduces their carbon footprint, then
managers who invest with these companies
are going to appeal to end investors.
“One good example is the Allianz Group,
which announced recently that it had
stopped doing business altogether with
any companies involved with coal-based
energy production. No insurance services
offered to these companies, no nothing.
That’s a major statement. It underscores
the growing level of global awareness for
sustainable investing.”
As part of its global investment strategy,
AMP Capital looks at how globalisation
and urbanisation are impacting areas of
infrastructure such as transport assets.
Airports are one piece of infrastructure
where AMP Capital has made a number of
investments, in part to respond to changes in
mobility and improved living standards.
“That applies to our UK airport
investments. Inevitably, over time we believe
you will see increased demand from the
Indian traveller, the Chinese traveller,
coming to visit the UK and that will give
an opportunity for regional airports. We’ve
looked in a number of European markets,
and today we’ve made three investments
“More broadly, there has been an
explosion in renewable energy in Europe in
the last 15 years with numerous businesses
supporting industrial infrastructure in terms
of grid reliability. We have a business in
Finland called Adven, for example, which
provides off-grid industrial energy solutions
to medium and large businesses. To
overcome grid reliability issues, Adven might
install a co-generation plant, for example, to
provide energy, cooling and heating needs
or large scale ground source heat pumps
(geothermal pumps), which are a sustainable
energy technology.”
Infracapital has also invested in Adven
and is a form of platform investment, where
new acquisitions are bolted on the primary
business to bolster the size of its operations.
“Platform investments for us means growing
the asset organically, or inorganically,
and creating greater efficiencies. It is a
powerful source of investment opportunity,”
says Lennon.
He refers to another platform company,
held in the Infracapital Greenfield Partners
Fund, called Bioenergy Infrastructure Group
(‘BIG’), a UK biomass and Energy from Waste
(‘EfW’) aggregation platform. “We are growing
and diversifying the business by bolting on
new business streams and projects to the
holding company structure,” adds Lennon.
Transportation & mobility
Tomorrow’s world is going to look
unrecognisable, with respect to the way our
cities function and how we move. Smart
cities, where every device and object will
be connected to the Internet of Things, will
see us living in buildings that are operated
with the highest of green energy credentials,
electric vehicles will run on electrified roads,
and what we regard as commonplace
features of today’s cities, such as car
parks, will likely not exist in a generation or
two’s time.
This is having real implications as to how
infrastructure investors think about the future,
and how they can ensure that the assets
they invest in today will still be relevant in 20
or 30 years’ time.
Transport and mobility, as a trend, offers
up potentially huge opportunities as society
re-imagines what it means to get from A to
B, without polluting the air we breath.
13
Award Winning European
Infrastructure Investor
Infracapital invests in, builds and manages a diverse range
of essential infrastructure to meet the changing needs of
society and support long-term economic growth
For more information visit
infracapital.co.uk
Infracapital is a business name of the European infrastructure division of M&G Investment Management Limited and M&G Alternatives Investments Management Limited.
M&G Investment Management Limited and M&G Alternatives Investments Management Limited are registered in England and Wales under number 936683 and 2059989. The
registered office is at Laurence Pountney Hill, London, EC4R 0HH, and both firms are regulated by the Financial Conduct Authority in the UK. JUN 2018 / IM1927
www.globalfundmedia.com | 11EUROPEAN INFRASTRUCTURE GFM Special Report Jul 2017
These are propitious times for European
infrastructure managers. The European
Commission has estimated that around
EUR200 billion is needed to upgrade Europe’s
infrastructure during the current decade for
transmission grids and gas pipelines.
“Clearly the opportunity set in
infrastructure is vast and continuing,”
comments Martin Lennon, Co Founder
and Head of Infracapital, one of Europe’s
leading infrastructure investors. Part of M&G
Prudential, Lennon co-founded Infracapital
with Ed Clarke in 2001, since when it has
subsequently raised and managed more than
GBP5 billion across five funds.
“Existing infrastructure in Europe needs to
be kept relevant in today’s world. There are
some significant trends such as increased
urbanisation, climate change and the shift
to green energy and electric transportation,
etc, which are putting stresses on
existing infrastructure. But it is also
creating significant opportunities for new
infrastructure projects. We think the private
sector has an important role to play.”
Infracapital is one of few infrastructure
managers who has dedicated funds
providing solutions for greenfield investment
needs, alongside its established brownfield /
operating infrastructure investment strategy.
Infracapital Greenfield Partners I LP was
established in 2017 with GBP1.25 billion
to invest in the later stage development,
construction and expansion of projects and
companies across a variety of sectors in
Europe. Although greenfield projects involve
investing earlier in the lifecycle of an asset,
Infracapital does not set out to be an early
stage developer. Rather, it partners with
developers to help them take greenfield
projects through construction.
“In the brownfield space, we like it when we
see existing operational infrastructure assets
that we can deploy further capital to and help
grow. The sector knowledge that we have,
both in executing transactions and managing
assets, is important, in both sourcing such
opportunities and supporting their growth.
Greenfield projects are pre-operational but
the construction phase represents a relatively
short period in the overall life of a greenfield
fund. Nevertheless, it requires a specialist
set of skills to manage greenfield projects
through to operation, at which point we run the
businesses like our other brownfield assets.
“From a network relationship point of view,
there is a complementary element to greenfield
and brownfield investing and enhances what
we do. We have broad relationships across
financiers, asset owners, entrepreneurs;
partners of all types,” explains Lennon.
As for brownfield investing, Infracapital’s
latest investment vehicle, Infracapital Partners
III, recently closed with GBP1.85 billion,
exceeding its target of GBP1.5 billion. The
Fund will invest in and actively manage
assets across Europe, predominantly in the
transport, utilities, renewable energy and
communications sectors.
“There are important differences in the
investment policies between the two and while
we do have a material overlap of investors
who are interested in both strategies, we also
have an important group of investors who
prefer one to the other,” says Lennon.
“One of the characteristics of a greenfield
fund compared to a brownfield fund is we
would be looking for the latter to deliver
real yield almost immediately, from the
point of ownership of a new asset. In a
greenfield fund, there is likely to be a slower
commencement of yield throughout the
fund lifecycle. Some investors prefer this
as once a greenfield portfolio becomes
operational it should produce a higher yield
than a brownfield fund. This is because
Greenfield and
brownfield investing
Interview with Martin Lennon
Martin Lennon, Co Founder
and Head of Infracapital
INFRACAPITAL
www.globalfundmedia.com | 12EUROPEAN INFRASTRUCTURE GFM Special Report Jul 2017
INFRACAPITAL
solutions are emerging and delivering faster,
more predictable connectivity. This is fast
becoming the new essential communication
utility now and for the next generation.”
While there are opportunities to be a
first mover investor in European greenfield
projects, equally there are a good number
of attractive, established businesses (like
CCNST) that need injections of private capital
to fully maximise their potential.
“From a brownfield viewpoint, we see
opportunities to support established
businesses which have significant future
potential to achieve their aims; these are
investments that benefit society as a whole,
not just our investors.
“In respect to renewables, we’ve been
very successful in district heating but while
we continue to see opportunities, the value
does vary considerably from country to
country. It’s important to choose one’s
markets carefully. We see a lot more energy-
related opportunities either coming from
corporate separations or sales, or resulting
from the new and changing demands of
an increasingly decentralised market with
a focus on smaller scale renewable energy
generation” says Lennon.
An example is the Dutch utility company
Eteck Energie Bedrijven BV (“Eteck”), for
which Infracapital acquired a 60 per cent
equity stake last July. Eteck is the country’s
market leader in sustainable collective heating
systems, which provide smaller scale heating
co-located with the buildings it services.
Lennon explains that within the
renewables space, it is becoming relatively
harder to make the numbers work for
operational solar and wind assets in most
of the mainstream jurisdictions (e.g. UK):
“However, we do see the opportunity to
make attractive returns on the greenfield
side of that equation; building new solar and
wind farms is a more attractive proposition
in many established European markets
than brownfield assets. The Amarenco joint
venture is a good example of this.
“As the industry evolves, we hope to be
able to make a positive impact and deliver
significant investment to help build for the
future, providing first class infrastructure
that meets the changing needs of society
and supports long-term economic growth
across Europe.” n
you’re coming in at cost as opposed to a
secondary market price.”
With more direct investor capital coming
in to the ‘real assets’ space, competition is
heating up, with more money chasing fewer
deals and pushing prices up as a result.
Lennon points out that Infracapital avoids
being in auction processes “where you run
the risk that your principal tool for success is
paying the highest price”.
“That’s not always the best way to
generate value for clients. The mid-market
is interesting for us, across both strategies,
because it offers the opportunity to actually
source and originate investments that
are, perhaps, more limited in terms of
competition; and which sometimes have
no competition at all. We therefore focus
on finding genuine, off-market bilateral
conversations and converting them into
deals. It is a fundamental part of how we
create value,” explains Lennon.
Originating and developing a pipeline of
deals is fundamental to any infrastructure
investor, even more so when seeking out
greenfield projects; Infracapital’s team has
transacted on seven greenfield deals, to date.
One such example is a joint venture with
Amerenco Solar, creating a platform (Infram
Energy), to invest in greenfield renewable
energy assets across France, Ireland and
other European markets.
The solar projects, some of which already
fully operational, are backed by a 20-year
Feed In Tariff. The company has continued
developing and acquiring greenfield projects
in France and has a strong pipeline for
renewable energy projects across Europe. It
expects to invest in approximately 100MW of
projects per annum over the coming years.
As for brownfield assets, Infracapital has
just acquired a majority stake in CCNST,
a leading provider of broadband services
in Germany, becoming the first portfolio
company of Infracapital Partners III.
“We are still finding an array of
investment opportunities across key
sectors,” says Lennon. “One space which
we are pretty active in is fibre optics. The
old copper wires that were the mainstay
of telecommunications and broadband
networks are no longer fit for purpose in
light of increasing demand that businesses
and consumers want today. Fibre optic
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OVERVIEW
this investment in 2015, having held it since
2008. During its period of ownership, Arcus
helped Angel Trains achieve 12 per cent
EBITDA growth.
“That was a stunning exit for us,”
comments Harding. “We exited the UK
Rosco space at the right moment as since
then there has been an increased level of
competition. People like Rock Rail have come
in and bid down the returns you can achieve
from new build passenger fleets.
“We have a current investment in Alpha
Trains. The fourth railway package in
Europe is creating an increased amount of
liberalisation, so incumbents like the SNCF
in France will face increased competition
from the private sector. Alpha Trains is an
independent private sector owner of rolling
stock and gaining market share. This is
allowing us to grow in continental European
markets, which we feel provide better
opportunities than the UK.”
Investing in electric trains such as
Alpha Trains, fits well with the long-
term sustainability trend that European
governments are promoting. Since Arcus
invested, Alpha Trains has more than tripled
the size of its fleet and EBITDA, helping take
passengers off the roads and reduce city
congestion.
“The quality of transport infrastructure is
improving and this is encouraging people
to use the rail network rather than the road
network. Alpha Trains has won a number of
awards for its sustainability initiatives. With
more people moving into urban areas there
is a need for better passenger services.
The provision of high quality rolling stock
is helping with the urban needs faced by
our cities as the demographics change,”
opines Harding.
in UK airports – Newcastle, Leeds Bradford
and Luton. We’ve spent a lot of time
looking at other European opportunities in
particular, and we continue to look at airport
opportunities globally,” explains Evans.
He also refers to centralisation of working
patterns and the way people commute as
another trend.
“The ongoing demand for more trains
was a big part of the investment decision
in increasing the stake we manage in Angel
Trains from 25 per cent to 65 per cent,”
adds Evans.
Ian Harding is a Co-Managing Partner at
London-based Arcus Infrastructure Partners,
which focuses on energy, transport and
telecoms in the European mid-market. “The
three things we see impacting European
infrastructure are what we call the ‘Three
Ds’: decarbonisation, demographic change
and data explosion,” says Harding. As
infrastructure changes and moves towards
a decentralised model, it naturally means
there is a greater requirement for localised
infrastructure.
With decarbonisation, this is being
achieved by moving towards renewable
energy. However, there is a lot more
intermittency created on the grid and that
requires localised solutions; this could be
battery storage or demand management
systems to ensure the grid is properly
balanced during periods of no wind or no
sun.
Electric trains – a live wire investment
“In transport, there is a huge desire to take
carbon-emitting vehicles off the road. This
will lead to more rail or intermodal transport
systems and will require fresh investment.
“With respect to data explosion,
people are demanding faster Internet
connections to stream live TV on their
mobile devices. Investment will be needed
in wifi communication towers, telecoms
infrastructure, data centres, fibre-to-the-home
and so on.
“These general trends are like a wave
impacting the infrastructure market and from
our perspective we want to ride that wave,
rather than swim against it,” says Harding.
Like AMP Capital, Arcus invested in
Angel Trains, one of the UK’s largest rolling
stock leasing companies. Arcus realised
9
“The three things we
see impacting European
infrastructure are
what we call the ‘Three
Ds’: decarbonisation,
demographic change and
data explosion.”
Ian Harding, Arcus Infrastructure
Partners
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OVERVIEW
European governments are committed
to removing diesel cars from the roads
and supportive of bringing on stream more
electric vehicles.
Harding points out that Scandinavia
now has some roads which have charging
infrastructure built in.
“It is possible that certain stretches of
roads in Europe will use this charging
infrastructure. It comes down to cost
benefit analysis and whether a particular
country can incorporate it within the road
infrastructure, but it may well happen in
certain places,” he says.
Digital infrastructure & data
management opportunities
Digital infrastructure will be a vital cog in
the European infrastructure wheel over the
coming years as businesses and consumers
alike step up their demands for ever-faster
Internet connectivity.
Conquest’s Palanque says that digital
infrastructure has various meanings. Firstly, it
relates to the additional flow of data that will
be needed to manage and upgrade existing
infrastructure.
“Instead of having a constant flow of
energy down the grid, the only way to use
distributed power generation is to know who
wants what, and when, and what price they
are willing to pay.
“Now that the data is here, we are finally
in a position to provide local generation to
match local demand. People call it ‘smart
grid’ or ‘microgrid’; regardless, it means
having more regional power generation and
regional consumption,” says Palanque.
Italy is already doing net metering
(‘Scambio Sul Posto’) where regional
plant operators pay the energy supplier
for the electricity consumed and receive
compensation for any excess electricity they
export to the grid from renewable sources as
PV installations.
“This is going to happen across
other parts of Europe, perhaps using a
combination of wind and solar, where
digitalisation of infrastructure will connect
users and producers at the right time, at
the right cost. Before you had one price,
one cost, and nobody knew who was
consuming what.
“This same digitisation trend applies to
Electric cars still in first gear
As we become increasingly reliant on
renewable energy, local grids will steadily
modernise into smart grids, or microgrids,
using data analytics to accurately gauge
consumer demand and provide the
necessary energy. In some respects,
technology will play a vital role in linking
transport and energy infrastructure; e.g.
meeting energy demand at electric car
charging points across the city.
This sounds obvious enough. But our cities
and grids were not designed to accommodate
electric vehicles. As such, it will require new
infrastructure. Charging points is a demand
story but there is also a supply story that
could emerge, whereby the roads themselves
become electrified. Cars will simply self-
charge, and potentially provide excess battery
storage to the local grid during periods of
peak demand; think of Scalextric that proved
popular with kids in the 1980s. If that were to
happen, electric vehicles could eventually be
used for grid balancing.
“Electric highways could be part of the
infrastructure transformation story,” states
Frederic Palanque, Director at Conquest. “A
number of players who are looking at this
are those in the train industry because the
concept will be similar to train lines, where
the roads have electrified strips. We are
working with, and advising corporates to
identify opportunities and to try to see if this
could become a live solution; if it does, we
will be positioned to provide private capital.
“Within the cities and the suburbs,
however, it will require a lot more charging
points. The current electrical network cannot
sustain multiple charging vehicles, which
means that the existing electrical network
will require significant investment to upgrade
medium voltage substations.”
The electric vehicle revolution is years,
if not decades ahead, so there is plenty of
time to get the infrastructure in place. There
are 31 million cars in the UK out of 38 million
registered vehicles. The number of cars
sold per annum is currently c.2.5 million “so
you’re looking at an overall fleet replacement
timeline, on average, of 12 years or more
and that assumes that every car being sold
is electric (versus around 5 per cent today).
This is a trend that may still be 20 years
away from being realised,” says Evans.
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OVERVIEW
the cabinet and then DSL, which is a copper
wire technology, delivers, theoretically, up
to 70MB connection to the Internet. DSL
degrades over distance, however. Copper
lines weren’t laid with the expectations there
would be high speed Internet.
“The question is, when does DSL get
replaced and what does it get replaced with?
Will it be a fibre-to-the-home product or will
it be a fixed wireless product using 5G? The
latter is a technology path that isn’t fully
explored yet and could compete with fibre-to-
the-home, particularly in suburban and more
rural environments,” adds Evans.
Data and digital infrastructure also
encompasses communication towers and
data centres, which are needed to store and
manage the vast volumes of data flowing
across our cities.
“We currently have three fibre optic
platform investments in Ireland, the US and
Spain,” confirms Evans. “With respect to
data centres, we spend a lot of time looking
at potential investments. We also look at
ancillary wireless; all of the new parts of
wireless networks emerging as a result of
5G – they won’t replace towers but there will
be much more complex wireless networks.”
Firms like Infracapital have invested in
fibre infrastructure businesses, the most
recent example being a majority acquisition
in CCNST, a leading provider of broadband
transport. When using a charger for your
electric car, you need to know whether
the capacity of the charger is appropriate
for your car, you need to be able to book
it so you’re not waiting. To do this, the
energy network needs to be aware that
someone is going to be using it – multiply
that by hundreds, or thousands of people, all
charging their cars in future years, and you
see why digitisation of the power grid will be
necessary,” adds Palanque.
The second meaning of digital
infrastructure applies to data; the
infrastructure needed to handle the flow of
data referred to above.
There is a huge need to deploy fibre optic
cable in Europe and develop local networks
that are linked to cities and regions.
“The need for corporates to be involved
and lead this transformation will bring the
industrial and technical expertise needed to
make this happen,” states Taillardat.
At AMP Capital, Evans remarks that
Europe is still in the early stages of a 20-
or 30-year cycle in respect to fibre being
ubiquitous for our homes and businesses.
“There is no doubt you will need fibre-to-
the-cabinet but whether fibre-to-the-home is
achieved in most markets remains unclear,”
says Evans.
The cabinet is the local junction box at
the end of a residential street. Fibre goes to
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OVERVIEW
with the new owners. That means whoever
is buying it will have the confidence to let
the management team continue to run the
business. At the point of sale, we don’t want
any business to still be overly reliant on us
as an owner.
“That’s why having our own in-house
asset management team is really important.
Whatever the circumstance, we take comfort
from the fact that we can work with a solid,
continuous management team or if needs be
we can go in and make necessary changes
with the confidence we have the proven
ability to do so,” outlines Lennon.
In his view, the ability to source interesting
opportunities in limited or non-competing
situations, with an active asset management
overlay, should lead to interesting returns.
Right now, there is a revolution taking
place equivalent to the Industrial Revolution,
as infrastructure evolves to support a
digital age.
“These are investments for the benefit
of society and for future generations. It
is necessary for institutional investors to
support this effort. However, it requires
significant industrial insight. That means
partnering with dedicated asset managers
who have the experience and who can help
bring an alignment of interests between
themselves and corporates,” concludes
Palanque. n
*https://www.blackrock.com/institutions/en-gb/insights/
investment-actions/2018-global-real-assets-outlook
services in Germany. Germany is currently
one of Europe’s most underserved
fibre markets, with Fibre to the Building
penetration of just 7 per cent. Likewise,
AMP Capital has invested in E-Fiber, a
growing fibreoptic network platform providing
68,000 fibre-to-the-home across parts of the
Netherlands.
Sourcing and executing deals
No matter what the investment opportunities
might be that lie ahead, sourcing and
originating the most compelling is a key
skill of any infrastructure manager. At
Infracapital, its transaction team go out into
the field across Europe where they meet
different asset owners, accountants, lawyers,
advisers. This is to make sure Infracapital
knows what’s out there and “they know who
we are, what we do, and what we can bring
to the table”, says Lennon.
“That’s really the genesis of deals in both
our brownfield and greenfield strategies
and how we feed the pipeline. It takes
a lot of time and effort. On top of that,
you need to have significant credibility in
certain situations because on occasion
we are finding companies that have done
well but are at a point where they have the
opportunity to take the business to the next
level. They want a trusted partner to come in
and help make that happen.”
Calvin Capital, a UK owner and supplier
of gas and electricity meters to electricity
utilities across England, is a good example
of a successful investment where Infracapital
helped it to achieve 17 per cent EBITDA
growth over the period of ownership.
“We acquired 50 per cent of the Calvin
Capital business alongside United Utilities
and it had a small management team in
place. We were then able a couple of
years later to acquire the remaining 50 per
cent from United Utilities, which enabled
us to take full control of the business.
We supplemented the management team
with a new CEO, and strengthened the
management team on top of an already
experienced and respected workforce.
“What we find works well for us is that,
at the point when we wish to sell any
asset we want to have a really high quality
management team that will speak well about
the business and be able to easily transition
