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IIF 2023 New York: Infra heavyweights detail investment strategies

Infrastructure and energy investment opportunities abound, despite a tough inflationary environment, sky-high asset valuations and challenging borrowing costs, said speakers on the first panel at the Infralogic Investors Forum New York 2023 conference on Thursday.

The investor-heavy panellists identified a number of investment assets, and investment types, that they are pursuing at the moment — as well as some sectors they feel are either over-valued, or not ready for prime-time investment cash.

In the first two categories, the panellists had no shortage of ideas.

“It’s such a rich environment, right?” said panel moderator Dolly Mirchandani, a partner at law firm White and Case.

It will come as no surprise that many see renewables as one of the most desirable current investment assets. The transition to renewables is well underway, but “it’s going to accelerate further with the IRA,” said Nasir Khan, managing director at Natixis, of 2022’s Inflation Reduction Act.

Cecilio Velasco, MD, infrastructure at KKR, laid out what he sees as the four main themes driving the renewables boom: 1) “Consume less,” which is driving investment in sustainable products and recycling; 2) Decarbonization and electrification of industries including metals, manufacturing and transport and is driving investment in technologies such as hydrogen and EVs; 3) “Greener,” which is where renewables and battery storage factor into efforts to reduce power sector emissions; and 4) “Whatever’s left” — meaning industries that will never get to zero emissions, which is where carbon capture investments come into play.

Dylan Foo, a partner and head of infrastructure at Apollo Global Management, and Gisele Everett, senior managing director, Americas, at OMERS Infrastructure, touted battery storage investments. While posing hardware and software risks, with the right structure, battery storage investments can be a good bet, Foo said.

Digital infra is also an investment area of interest at the moment — driven in part by the transition by many enterprises from on-site to cloud computing, Khan said. This is manifesting itself in a proliferation of data center and fiber deals, he said.

However, the rapid growth of many types of digital assets has driven fiber equity valuations to levels that Foo sees as unsustainable. Still, there are opportunities to invest in fiber “incumbents” looking for balance sheet help and new entrants, said Everett.

From a debt perspective, however, investing in fiber-to-the-home (FTTH) is interesting at the moment, said Khan. There are three FTTH deals either in or close to the market at the moment, with more in the wings, he said.

Several panellists said that most US tower investment opportunities are too rich at the moment. “I don’t think towers — and, frankly, core infra — makes a lot of sense right now,” given the head-scratching valuations of some recent deals, said Foo.

The US tower market is highly consolidated, leaving few investment opportunities, said Everett. But that will change if growth continues, she said.

Not yet ready for prime-time investors are carbon capture, according to Everett, and hydrogen, according to Everett and Velasco. The sectors will become infrastructure once their technologies are perfected and proven, said Everett — who said she is keeping an eye on them. Hydrogen is a lot of talk but less action at the moment, said Velasco. But he sees “tailwinds” for the technology, particularly for industrial purposes, if it can be made greener.

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