CDPQ, Prudential see infra through new lens post Covid
As asset owners scale up their infrastructure investments amid Covid-19, some are discovering how the coronavirus pandemic and technology have reshaped prospects and added complexities for this alternative asset class.
“It’s a new way for us even to see infrastructure. It's actually the technology and the infrastructure together,” Marc-André Blanchard, head of CDPQ Global, the overseas investment arm of Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ), said during a panel at the Milken Institute's 2020 Asia Summit on Tuesday (December 8).
For example, in Montreal, CDPQ Capital has designed, built, and will soon operate a 68-kilometre-long light rail, which is enabled entirely by technology, Blanchard said.
This is an opportunity, a new role for institutional investors, he said. The focus will be on greenfield projects where you mix technology and infrastructure and different stakeholders, rather than brownfield projects, he noted.
Ben Rudd, the chief investment officer of Prudential Hong Kong, also said investors now have to analyse more factors when considering infrastructure investments post Covid-19.
Almost all asset owners have been putting a lot more money into infrastructure assets, which by definition, are very long-term projects. But of course, how people operate and work has changed, and it is essential to bring that into the risk discussion, Rudd said.
“We think there's going to be real changes in terms of how people work in the future,” he said, adding that these changes have implications for transport systems. “We'll be looking towards the sort of more localised transportation systems rather than the bigger intercity transportation [modes], particularly for airlines,” he said.
“It's not so much saying infrastructure is a winner or a loser. It's different parts within the infrastructure sector. There will be very clear winners and very clear losers, and often those losers are things that had been inherited, particularly from some longer-term investment projects,” he said.
Investment interest in alternative assets escalated during the pandemic as low-interest rates and volatile markets forced many investors to seek yield outside of traditional bonds and equities.
Taiwan’s Bureau of Labor Funds in October invited fund managers to pitch for a $1.64 billion global infrastructure securities mandate along with another $2.3 billion mandate that focuses on global multi-assets, as it looks to rotate out of poor performers.
Meanwhile, South Korea’s Public Officials Benefit Association plans to seek infrastructure opportunities in the US after Joe Biden is announced officially as the country's president.
Ontario Municipal Employees’ Retirement System, one of Canada’s big public pension plans, is also considering investing in infrastructure in new markets in Asia and may as much as double its allocation to such assets in the region within five years.
INCREASING COMPLEXITY
That said, asset owners at the webinar highlighted increasing risks associated with infrastructure investments.
The complexity of infrastructure projects has increased; it is around construction, stakeholders, or having the government as the key client, said Damian Graham, the chief investment officer of Aware Super. There are several complexities that investors have to investigate to try to generate those long-term returns, he said, adding that for Aware Super, optimising governance is a priority.
Aware Super can invest in anything complex, but it has limited bandwidth to deal with the complexity, he said. “And right now we're having to rethink about what types of services we want to have, and how we want to adjust for the trends we are talking about, which are the winners and losers,” he said.
Ana Marshall, the chief investment officer of William and Flora Hewlett Foundation, echoed Graham’s opinions.
Asset owners are so used to always thinking in terms of liquidity risk or volatility risk, she said. What this massive wave of disruption, both from technology as well as Covid, has introduced are more investment intricacies, which are barely captured in any of the risk processes, she added.