Our 2019 Global Summit has been in full swing for the past three days. And if you aren’t here in Berlin, I’m afraid you’re missing out on the world’s largest infrastructure conference.
Creative de-risking required
Although there are real risks to investing in infrastructure in emerging markets, investors need to make better use of the de-risking tools at their disposal. They also need to stop thinking about emerging markets as a “single risk pool”. These were the key messages from Jim Yong Kim, former president of the World Bank and current vice-chairman of Global Infrastructure Partners, at the opening of the summit.
Failure to heed these calls could lead to investors missing out on a promising growth story. This is because increasing automation all but ensures that future development in emerging economies will not come from industrialisation.
“It’s not going to be about cheap labour anymore,” said Kim. “It’s going to be about access to capital and access to human expertise.” That includes capital and expertise for transport, energy and broadband – the kind private investors specialise in, if they can overcome their obsession with the OECD …
ESG needs measuring
If there was one rallying cry coming from our debut ESG forum, held on 18 March, it was the need to better measure – and standardise – the implementation and impact of environmental, social and governance criteria. At the moment, beyond measuring the ‘E’, which usually comes in the form of CO2 savings reports, there simply isn’t a consensus on how to holistically determine if ESG is being successfully implemented.
The good news? No one is in any doubt about ESG’s importance. As Vantage Infrastructure senior partner Valeria Rosati put it: “The single most positive impact is the avoidance of breaching the social contract.”
Heading for impact
Sticking with this subject for a little longer, the other key takeaway to emerge from Day One was how thinking around ESG is changing. “ESG is evolving from a risk-management tool to an avenue for value creation,” argued Esther Peiner, managing director of Partners Group’s investment team. That puts it solidly on the road to creating an impact.
The key to getting there, though, is through senior buy-in. “Is it something the founder is highly convinced of and speaks about very frequently?” asked Peiner. “Or is it just two people within a very big investment engine?”
Time to talk to Joe Public
To say the threat of populism is on everyone’s minds would be an understatement. Its impact on the industry – from nationalisation to restrictions on foreign investment – has not escaped anyone’s notice either.
“As an industry, we are not winning the debate,” said Tom Maher, head of business development at Whitehelm Capital, referring to the asset class’s poor perception among the public.
The solution? Reach out to the public directly. “When you start the argument saying that you need to lobby the government, you’ve already lost the debate,” said InstarAGF head Gregory Smith. “You have to go back and get the community on your side.”
We’ve yet to reach our peak
OK, you can relax: despite all the headlines about record amounts of capital being raised, we have not yet reached peak infrastructure. That was according to 66 percent of the audience for a panel discussion on the subject (though they may have been biased).
But as Tom Masthay, director of real assets at Texas Municipal Retirement System, pointed out, it’s a “foregone conclusion more capital is going to get allocated into infrastructure”. He should know, considering how little US pensions still commit to the asset class.
Valuations, though, remain high in a number of markets. “There’s certainly a sustained number of increasing transaction values across Europe, Australia and other markets,” said Robert Hardy, managing director at JPMorgan Asset Management. “There’s a lot of money chasing very few assets.”
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