Top 100 Infrastructure Managers 2020: A big balancing act

BY MAHA KHAN PHILLIPS, CHRISTOPHER O'DEA JULY/AUGUST 2020 (MAGAZINE)

With transport assets hit harder than other sectors, diversification is as important as ever for infrastructure fund managers. Maha Khan Phillips and Christopher O’Dea report

With hundreds of global infrastructure assets linked to energy and transportation, or to revenues based on usage, it is no surprise that this is a difficult time for some infrastructure investment managers. 

Since the COVID-19 crisis hit, passenger numbers for air travel have been at record lows, down 90%, at levels not seen since the 1950s. EDHEC’s Infra300 Equity index is down 6.37% in the first quarter of 2020, in part because of exposure to merchant business risk. The Merchant Infrastructure Equity index returned -9.15%, while the Advanced Economies Unlisted Airport index slumped to a -10.16% return. The Unlisted Road index stood at -13.67% for the first quarter.

Despite the negative performance, infrastructure managers and consultants are optimistic about the long-term performance and resilience of the asset class. Infrastructure returned 10.6% from 2007 to 2016, according to Preqin and, even during the current crisis, fundraising is continuing as long-term investors look for opportunities.

“Fundraising has not stopped. Ultimately, it will depend on how attractive the underlying strategy is,” says So Yeun Lim, global head of infrastructure research at Willis Towers Watson. 

Lim believes that navigating the crisis is less about who the managers are, or how big they are, but about what sectors they are exposed to. “Those that have had more exposure to airports and transport assets where there is no income have suffered a lot,” she says. “Some other sectors have shown themselves to be very resilient. Communications or digital infrastructure has a very strong tailwind. More and more, it’s become an essential service.”

But those with exposure to economically sensitive assets have had to grapple with a sudden, unexpected loss of revenue. Spence Clunie, managing partner at Ancala Partners, which targets mid-market infrastructure assets in the UK and Europe and owns Liverpool John Lennon Airport, says revenues from the airport have been close to zero.

TOP 100 INFRASTRUCTURE INVESTMENT MANAGERS
The 100 largest infrastructure investment managers, led by Macquarie Infrastructure and Real Assets and Brookfield Asset Management, manage more than €1.18trn in assets.

	Company	Infrastructure AUM (€m)	Total AUM (€m)	As at
1	Macquarie Infrastructure & Real Assets	209,377	239,974	31/12/2019
2	Brookfield Asset Management	117,211	374,696	31/12/2019
3	Global Infrastructure Partners	66,072	66,072	31/12/2019
4	M&G Investments/Infracapital	54,456	324,620	31/12/2019
5	IFM Investors	48,835	102,210	31/12/2019
6	Allianz Global Investors	35,000	563,000	31/12/2019
7	BlackRock	25,739	6,889,498	31/12/2019
8	AMP Capital	24,817	129,981	31/12/2019
9	MetLife Investment Management	23,239	543,806	31/03/2020
10	InfraRed Capital Partners	22,756	26,237	31/12/2019
11	DWS	20,736	767,399	31/12/2019
12	EIG Global Energy Partners	20,255	20,255	31/03/2020
13	Colony Capital	18,500	45,320	31/12/2019
14	Energy Capital Partners	17,857	17,857	31/12/2019
15	Stonepeak Infrastructure Partners	16,250	16,250	31/12/2019
16	First State Investments/First Sentier Investors	15,965	143,106	31/12/2019
17	APG Asset Management	15,243	538,095	31/12/2019
18	Lazard Asset Management	13,850	198,617	31/12/2019
19	Kohlberg Kravis Roberts & Co.	13,728	194,961	31/12/2019
20	Antin Infrastructure Partners	13,300	13,300	31/12/2019
21	EQT Partners	13,200	39,900	31/12/2019
22	Ardian	13,126	88,106	31/12/2019
23	Blackstone	12,500	480,357	31/03/2020
24	J.P. Morgan Asset Management	12,215	1,804,720	31/12/2019
25	I Squared Capital	12,143	12,143	31/12/2019
26	Nuveen	12,020	946,047	31/12/2019
27	Aviva Investors	11,700	408,496	31/12/2019
28	Pantheon Ventures (UK)	11,423	43,767	31/12/2019
29	Amber Infrastructure Group	10,689	10,689	31/12/2019
30	Partners Group	10,666	83,826	31/12/2019
31	Legal and General Investment Management	9,581	1,386,164	31/03/2020
32	Queensland Investment Corporation (QIC)	9,409	52,131	31/12/2019
33	AXA Investment Managers - Real Assets	9,233	100,200	31/12/2019
34	Copenhagen Infrastructure Partners	8,600	8,600	25/05/2020
35	Meridiam	8,000	8,000	31/12/2019
36	MEAG	7,812	297,325	31/12/2019
37	Manulife Investment Management	7,768	364,454	31/12/2019
38	Aquila Capital	7,708	10,771	31/12/2019
39	Actis	7,500	12,000	31/12/2019
40	CBRE Global Investors	7,305	100,653	31/12/2019
41	Equitix Investment Management	6,853	6,853	15/05/2020
42	DIF Capital Partners	6,665	6,665	31/12/2019
43	Dalmore Capital	6,389	6,389	31/12/2019
44	Goldman Sachs Merchant Banking Division	6,331	125,838	31/12/2019
45	Greencoat Capital	6,295	6,295	31/12/2019
46	Capital Dynamics	5,900	15,500	31/12/2019
47	Natixis Investment Managers	5,574	828,400	31/03/2020
48	Cohen & Steers Capital Management	5,450	51,900	31/03/2020
49	Hermes Infrastructure	5,073	5,073	31/12/2019
50	Swiss Life Asset Managers	4,846	234,400	31/12/2019
51	GCM Grosvenor	4,821	51,572	31/12/2019
52	Arcus Infrastructure Partners	4,800	4,800	30/04/2020
53	KGAL Investment Management	4,759	20,152	31/12/2019
54	InfraVia Capital Partners	4,700	4,700	31/03/2020
55	Rivage Investment	4,650	6,163	31/01/2020
56	Vantage Infrastructure	4,467	4,467	31/03/2020
57	Keppel Capital Holdings	4,464	29,464	31/12/2019
58	Foresight Group	4,372	5,090	31/12/2019
59	RARE Infrastructure	4,349	4,349	31/12/2019
60	Pathway Capital Management	4,191	55,245	31/12/2019
61	UBS Asset Management (Real Estate & Private Markets)	4,134	99,900	31/12/2019
62	Maple-Brown Abbott	4,113	8,842	31/12/2019
63	Golding Capital Partners	3,800	9,000	31/03/2020
64	Vauban Infrastructure Partners	3,700	3,700	31/12/2019
65	The Carlyle Group	3,617	196,219	31/03/2020
66	Gravis Capital Management	3,505	3,797	31/12/2019
67	Schroders	3,203	531,672	31/03/2020
68	Edmond de Rothschild Asset Management	3,165	73,455	31/12/2019
69	Oaktree Capital Management	3,062	110,100	31/12/2019
70	Whitehelm Capital	3,045	3,419	31/03/2020
71	Aberdeen Standard Investments	3,000	574,199	31/12/2019
72	Axium Infrastructure	2,966	2,966	30/09/2019
73	Morgan Stanley Investment Management	2,772	491,689	31/12/2019
74	Arjun Infrastructure Partners	2,447	2,447	31/12/2019
75	Amundi	2,327	1,527,487	01/05/2020
76	Nissay Asset Management	2,216	115,839	31/12/2019
77	Cube Infrastructure Managers	2,200	2,200	31/12/2019
78	African Infrastructure Investment Managers	2,097	2,097	31/12/2019
79	Sequoia Investment Management Company	2,037	2,037	31/12/2019
80	NextEnergy Capital	2,022	2,022	31/12/2019
81	La Banque Postale Asset Management	2,017	4,948	31/05/2020
82	Glennmont Partners	2,000	2,000	31/12/2019
83	Patrizia	2,000	44,500	31/12/2019
84	Sumitomo Mitsui DS Asset Management (UK)	1,946	125,404	31/12/2019
85	Generali Global Infrastructure	1,900	1,900	31/05/2020
86	3i Infrastructure	1,846	1,846	31/03/2020
87	Ancala Partners	1,800	1,800	31/12/2019
88	Basalt Infrastructure Partners	1,786	1,786	31/12/2019
89	Marguerite	1,714	1,714	31/12/2019
90	Mirova	1,259	11,542	31/03/2020
91	CIBC Asset Management	960	127,123	31/12/2019
92	Gresham House	884	3,276	31/12/2019
93	Nomura Asset Management UK	781	440,353	31/12/2019
94	Infranode	750	750	31/12/2019
95	Ninety One	747	136,549	30/09/2019
96	SPF Beheer	548	23,887	31/12/2019
97	BNP Paribas Asset Management	494	552,769	31/03/2020
98	Impax Asset Management	476	19,049	31/12/2019
99	Nykredit Asset Management/Nykredit Bank	302	45,208	31/12/2019
100	MPC Capital	300	4,500	31/12/2019

Top 10 Breakdowns
The 10 largest infrastructure managers by AUM, broken down by capital raised in 2019, debt investments and geographic investments

“It’s about managing liquidity,” he says. “We are focusing on what can be done with costs, with various contracts, and then we are running scenarios over 18 and 24 months. Will we have enough liquidity, and how do we manage that? Even if we come out of lockdown quickly, nobody knows for sure whether people are going to be comfortable doing the activities they did before, like flying.”

However, Ancala is well-diversified, with other portfolio companies not affected in any material way by the crisis, he says. And Clunie points out that over the medium and long term, airports should rebound. “We have another 10-plus years to run in our fund, and I feel the traffic will be back up to what it was over that time period, barring another unusual event.”

Lesson number one of the past 17 years was the “benefit of holding a diversified infrastructure portfolio,” says Karl Kuchel, CEO of Macquarie Infrastructure Partners (MIP), which has managed a series of US infrastructure funds since 2006. “Infrastructure is characterised by high-quality assets, but you still have variation in the impact of macroeconomic factors across different sub-sectors, so if you’re well-diversified, you have offsetting impacts.”

Of the 13 assets in the first fund, MIP I, eight were in transportation, and some were affected in terms of volume or traffic flows as the economy slowed in the years after the 2008 global financial crisis. “The fund benefited from those holdings being in the same portfolio with a number of other assets, including regulated utilities, which generally hold up well from a performance perspective during slower economic environments and generally offer a higher yield,” Kuchel says.

As the MIP team was investing a third, and then a fourth fund, the post-crisis economic expansion continued. A subtle lesson emerged. “It became reasonable to expect a slowdown,” Kuchel says. “We would never be so bold as to say ‘this is going to be the reason, and this is the quarter it’s going to happen’, but we realised that the longer the expansion cycle lasted, the more prudent it became to assume that a slowdown might affect the early holding period for new investments.” 

He adds: “When we wrapped up MIP I, we obviously didn’t necessarily see exactly what is unfolding today, but I think we had a better view than most because we are the largest private port-terminal owner in the US.” A slowdown in port activity provided the first signal that the virus emerging in China would have an impact on the US, the world’s largest importer, where 70% of GDP is related to consumption. The global supply chain carried the message as factories in China closed, containers did not get to ports, and ships did not sail. The effect was visible not only at MIP-owned container terminals but up and down the US west coast in mid-February, Kuchel says. Most companies in the US had an inventory cushion that enabled them to absorb the initial drop in shipments from China, so the direct impact on US economic activity did not occur until mid-March, he adds.

The onset of the pandemic had the makings of another infrastructure investing lesson: while businesses that are integrally tied to the economic cycle, such as trade-dependent container ports, might be exposed to a slowdown, they can also serve as an early-warning system for the rest of a portfolio, providing an advance look at emerging business conditions and what those changes might mean for utilisation of other infrastructure assets.

Navigating the crisis
Fund managers with struggling assets are in discussions with banks to refinance. Clunie says banks have been supportive, and they recognise that this is a crisis that is not the fault of the underlying assets or managers.

Boe Pahari, CEO of AMP Capital, says: “We are working with the banks in terms of debt liquidity. The banks are being positive, as they should be. This is not a crisis that is airport-specific. 

AMP Capital owns airports in the UK and Australia. “Thankfully, we own a diversified portfolio, from transport, energy, communications, and health,” Pahari says. “In communications, we are seeing growth, with a need for more data and network and fibre-optics. We will see a paradigm shift in this space. In the area of health, we are involved in long-term care, and that remains relatively strong. Now, more than ever, we are focused on hygiene safety, and having environments that are as infection-proof as possible.” 

Fund managers are for the most part optimistic about refinancing, says Lim. “What we are hearing generally is that a lot of infrastructure assets are, by nature, essential services, or very important assets, and so many asset managers are hoping to get help from the public and private sector.”

For other players, finding liquidity is less of an issue. Martin Stanley, global head of Macquarie Asset Management, says: “One of the key differences to the [2008] global financial crisis is that the banking system is generally well-capitalised this time around. Also, given the lateness of the expansionary cycle just ended, we entered this period having taken deliberate steps over the last few years to set leverage levels appropriately, and to either refinance or term out much of our portfolio company debt ahead of need.”

Brookfield Asset Management, which finished raising $20bn (€17.7bn) for its latest infrastructure fund in February, says its liquidity position is the strongest it has been in years, at about $4.3bn, partly because of capital market initiatives that were undertaken to strengthen liquidity, and partly because of a bond issuance. In the first quarter of 2020, Brookfield Infrastructure generated funds from operations of $358m, an increase of 2% to the previous year. Every one of its assets was deemed to be an essential service.

Mark Murski, managing partner of Brookfield’s infrastructure group, says: “We are advantaged to have a portfolio that is diversified globally and by sector. Our renewable power, data and utility businesses have been pretty much unaffected. The economic swings in the global environment don’t really impact those businesses and, in fact, we’ve seen an uptick from a demand

Justin Beardon, infrastructure specialist at Preqin, believes that getting through the crisis will depend on each manager or operator’s financial position, as well as the strength of its relationships with counterparties. “There is an argument that the long-term nature of infrastructure assets, with long-term contracts, would ride out any volatility, and would be in a strong position when some normality is returned in terms of level of usage of these assets,” he says. “In contrast, those who perhaps posed a counterparty credit risk, or have a counterparty doing the same thing to them, will be in a difficult position.”

Infrastructure valuations have been at record highs for nearly a year, according to Beardon. “It would appear that the deal values by proxy valuations have remained at a very similar level as that seen in 2019, but whether that continues to be the case is certainly up for debate,” he says.

Fundraising in the first quarter of 2020 has been strong. According to IPE Research, the 10 infrastructure fund managers that raised the most capital in 2018 secured about €48bn in capital commitments between them. In 2019, the number had risen to €58bn.

By June of this year, Preqin had confirmed expected closes for 18 funds targeting a total of $18.5bn. In the third quarter, there is a similar picture, with 13 funds initially targeting $10.4bn. “I would expect to see some slippage in terms of those expected closes and for fundraising to not reach the level seen in the first quarter for the remainder of the year,” says Beardon.

In its Q1 2020 update, Preqin says that fundraising for energy and transport sectors, traditionally the most active, experienced a slowdown in activity. In contrast, there has been a substantial increase in telecoms and social infrastructure deals, compared with 2019. Although the total capital raised in the quarter did not surpass the $43bn raised by funds closed in the fourth quarter of 2019, or the $39bn in the third quarter of 2018, it did raise $38bn, which was the third-highest quarterly total ever recorded.

However, the number of funds closing fell sharply from 31 in Q4 2019 to 17 in Q1 2020, mainly because of a group of established fund managers raising mega-funds and attracting a large chunk of investor commitments. 

That might have implications. There has never been so many funds in the market before, according to Preqin. There are 248 funds targeting capital, with the greatest proportion falling in the $500-999m bracket. In contrast, investors are scaling back their commitments. Investors issued less than 100 mandates for infrastructure funds in Q1 2020, compared with 200 mandates issued in the same period last year. It means investors will be more discerning about who they work with, and smaller players might struggle.

“If you are looking to launch a new fund, now might not be the right time,” says Lim “It depends on your strategy, and the strength of your brand.”

David Altshuler, head of the global relationship group, North America, at IFM Investors, does not anticipate any impact or change to the firm’s assets or strategy as a result of COVID-19. “I don’t see any long-term impact to investor interest in fundraising, or to long-term interest in investing in the asset class,” he says. “The benefits that infrastructure can provide within a diversified investor portfolio are becoming more evident. We’ve seen a few short-term bumps with respect to investor activity and those have been related more to a massive shift for investors to the work-from-home situation. Not all investors have been able to maintain the same decision-making schedule that they had.” 

IFM has written down some of its assets by 8%, but Altshuler points out that it is about diversification. “Across our funds we are invested in over 30 businesses in 20 countries and 11 sectors,” says Altshuler. “If we were a strategy or fund that is focused on a single market or a single sector, we could potentially be facing a concentration risk, which we just don’t have in our portfolio.”

Even within transport, he says, IFM’s assets are diversified by geography and sub-sector. They have different underlying revenue mechanisms, and are all responding differently to the crisis.

Diversification has been key in managing the crisis for infrastructure players. Sub-sectors like digital-assets infrastructure, a collective name for mobile and internet infrastructure which includes things like data centres, fibre-networks, and macro and micro sell towers, have proved to be defensive, as have some renewable assets. Foresight Group was able to close its co-investment in an offshore wind project in Sweden in April, for example, despite the crisis.

Chris Tanner, partner at Foresight Group, says: “Infrastructure, and renewable infrastructure in particular, is coming out of this crisis looking pretty resilient. Investors continue to view the space favourably. Our fundraising efforts are looking positive and there has been recent fundraising in the listed market as well.” 

Pahari also points out that food infrastructure and storage will become a significant sub-sector for the asset class, and points to themes emerging around working from home, health and pharmaceuticals, and biotechnology and biometrics. “From an infrastructure perspective, we have to think about how we can move into the sectors that are adjacent to the themes that we are seeing, and how we can offer the best opportunities for our clients,” he says. “What this virus has shown is the need to be nimble, the need to sense and perceive trends quickly, before it’s too late to respond.”

It is also about timing. There is plenty of dry powder in the market searching for opportunities. Brookfield has a large chunk of this dry powder and Murski is waiting for the right opportunities. “From my perspective, when buyers are more mobile and feeling more ready to transact is the time to revisit monetisations,” he says. “For the time being, interest rates are pretty low and demand is high, and assets are performing above where we would expect them to, in the unaffected areas.” 

Altshuler thinks that, over the long term, infrastructure could come out of the crisis even better than it went in, despite the difficult and unfortunate circumstances. “The last time of significant market disruption, which was the global financial crisis, infrastructure was relatively new as an asset class for many investors,” he says. “The track records weren’t really there. This is really the first test for infrastructure, and I think the resilience of the asset class will become more evident.”