MaveFund has identified Infrastructure as an investment theme that works both for private and public markets to potentially underpin investors’ portfolio returns for the year ahead.
There is a clear vertical that guides our opinion about Infrastructure Investing. This is the broad shift in energy supply-demand induced by the War in Ukraine, this has translated into high levels of uncertainty within Energy market that has driven up Oil and Gas prices after the Ukraine´s invasion to about $120 USD/Bbl for Benchmark Oil Brent Crude in March 2022 and to about $340 EUR/MWh for the Natural Gas EU Dutch TTF in August 2022. In turn, these price dislocations induced upward inflationary pressure on economies, particularly in those reliant on Russian Oil and Gas flows. In particular, the European Union block closed 2022 with a record annual inflation of 10.4% with countries like Germany signaling an unprecedented high level of 9.6%; the US also closed 2022 with a relatively high level of 6.5%.
The War in Ukraine hinted out some structural vulnerabilities for economies, predominantly those from the G7 and its allied countries, that are exposed to cuts of Oil and Gas supply. Such exposure might entail spikes in prices of essential goods and commodities, eventually resulting in rises in inflation as well as potential internal political disruptions. Therefore, it is paramount for domestic and regional energy security of economies to increase the level of investments in Renewable Energy Infrastructure in order to augment its sources of energy supply; one suitable example is the US which has devoted sheer political and financial efforts in order to increase its footprint within Renewable Energy Infrastructure. Last August, the Inflation Reduction Act was approved, this legislation is mainly intended to enhance the energy security of the US by investing in different types of Green-related Infrastructure, ranging from Renewable Energy projects (Solar PV Plants, Onshore and Offshore Wind Farms), Electric Vehicle plants and Battery hubs, to this date under this legislation about USD$ 90 billion has been committed towards such projects. In addition, the Inflation Reduction Act earmarks about USD$ 369 billion in grants, loans, and tax credit for the rollout of Renewable Energy Infrastructure in the US. The US also pulled off a landmark legislation last November 2022, this is the Infrastructure Bill which will deploy about USD$ 1 trillion towards domestic US infrastructure, spanning from building Roads and Bridges, Clean Water Infrastructure, Digital Infrastructure, and naturally to prevent the Climate Crisis. These two legislations set a sound precedent (and boost) for economies and private players in the market for investing now in Infrastructure, and particular investing in Renewable Energy Infrastructure. The European Union has also implemented a plan — approved in May 2022 — to deploy additional investments for EUR$ 210 billion earmarked for Renewables projects, spanning from Solar PV Plants Wind Farms, Hydrogen Infrastructure, Gas Pipeline Infrastructure, and LNG imports.
While it is undoubtedly remarkable that the US and the EU have started to funnel large investment towards the Infrastructure space, it is important to highlight that China has been the behemoth in terms of the scale and scope of Infrastructure Investing, for instance in 2022 China invested more than USD$ 90 billion towards Renewable projects, outpacing the combined investments amount of US and Japan with about USD$ 60 billion and USD$ 19 billion, respectively. In addition, China accounts with its influential and far-reaching Belt and Road Initiative (BRI) which only in 2022 deployed investments for USD$ 67.8 billion worldwide. Furthermore, since 2013 the cumulative investments under the BRI across Asia, Africa and Latin America amounted approximately USD$ 1 trillion. Whilst there have been reports about some countries facing difficulties to serve their debt to the BRI as well as doubts on the operative and financial feasibility of some Infrastructure projects in countries such as Sky Lanka, Zambia and Romania, it is undeniable that China has a long-term bullish position for Infrastructure Investing, this is, China has long ago recognized that heavily investing in this sector will provide benefits for its global goals, increase its global footprint in rich-commodities countries, boost its internal market and advance its export baseline, as well as creating a global network of allied countries.
In sum, MaveFund underscores its investment recommendation based on the geopolitical shifts exposed by the War in Ukraine and its repercussions onto the Energy market, the schemes developed by the US and the EU to enhance their domestic and regional energy security, the ongoing support of China towards Infrastructure projects with a particular emphasis in Renewable Energy ones.
MaveFund thus considers that Infrastructure Investing should benefit active investors looking for low-correlated assets to the market; investors operating in private markets should benefit from asset managers with a clear mandate in Infrastructure Investing (Core, Core+, or Opportunists), both debt and equity vehicles would provide potential upsides such as steady cash flows for the former and capital appreciation for the latter, private investors should decide which vehicle in function of their risk appetite. Investors operating in public markets should benefit from companies with a clear commitment to continue deploying investments towards Infrastructure projects (Renewables, Roads, Digital Infrastructure, Hydrogen, Biofuels, Battery-related technology), namely, MaveFund has a bullish view on Brookfield Asset Management (NYSE:BAM).
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