Episode 24

Episode 24: Three infrastructure investing questions for Stéphane

Steve sits down with Stéphane Kofman, Director of Infrastructure at InfraRed Capital Partners, to discuss infrastructure as a growth stimulus and the importance of public capital.

Steve Peacher: Hi everybody thanks for dialing in this is Steve Peacher, I’m President SLC Management and I’m really pleased actually be in person with Stéphane Kofman, who is a partner at InfraRed Capital Partners and director of their infrastructure business, very involved in everything they do on the infrastructure side, so what we're going to talk about today is infrastructure in Europe. As covid starts to subside what are some of the trends that you're seeing in the infrastructure markets?

Stéphane Kofman: Hi Steve, thank you for inviting me here today as it is a very exciting time for infrastructure business and I’m very pleased to discuss it with you. I think they'll probably three main ideas I would like to develop, so the first one is infrastructure as a growth stimulus, as we are slowly moving out of the pandemic all who are leaders are trying to find a way to revive economies. We see Joe Biden's $7 trillion “Build Back Better” plan in the U.S.[1], we have $1 trillion green deal in Europe[2], which is a very bold initiative to try to push EU towards carbon neutrality by 2050. We also see China embracing infrastructure as a way to recover, so this is a very common topic that we know as well, but it's very hard to implement so I’m very curious to see how this is going to play out. The second point is also the fact that sustainability and climate change is now back at the top of the agenda. Unfortunately, climate risk is not a remote, distant abstract threat. We are seeing that on a daily basis, we have seen flooding, wildfires, heatwaves and so on and so on, so this is really, really, something which needs to be addressed and, in our opinion pieces, this is greatest challenge we have to face in this thinking. Fortunately infrastructure investors are well positioned to contribute and make a difference. The third thing is for the fact that we have seen an increase in infotech and technology adoption in infrastructure, of course, we have use requirement rollout fiber and make sure we invest in resilience, in a fast fiber networks. If you measure the gap as advanced economies like Korea, where 80% of the population has access to fast fibre broadband services[3], you can measure the gap. So this is a very exciting sector, but more generally technology as still a lot to do in terms of improving infrastructure, we see the use of big data to optimize the use of existing assets. We see the adoption of 3D printing in construction, computer modeling in the design phase, so technology is really is a big thing to come as well.

Steve Peacher: So you've got a number of trends that are driving opportunities, but the same time there's a lot of competition, there's a lot of money that's coming into this market, so what are you doing at InfraRed to capture the opportunities that are being generated by the trends that you mentioned?

Stéphane Kofman: So, first, I think we have a unique position, first we have our greenfield strategy. With that, we are really focusing on developing and managing construction of new piece of infrastructure, we are focusing on building resilient modern infrastructure assets and also supporting the energy transition, we are helping platform to grow your business and grow asset base.

We are repurposing existing asset to make them future proof. So a lot of activity, coming from our ability as a greenfield developer. The second point is of course very important aspect in our business, which is, we are also a long-term custodian of key strategic public infrastructure assets. With our long-term income strategy we try to aggregate assets in large portfolio management for our entire economic life and delivering stable income for investors and by doing that, of course, we are addressing the needs for stable, solid yield for public pensions and life insurance companies like Sun Life, so we are playing a very critical role, I think. We also helping developers to recycle their capital, we are holding the assets post construction. And finally, we are directly impacting people's lives for our operation and maintenance of those critical piece of infrastructure, so a lot of things in our in our responsibility. And if it is difficult question has a very simple answer: we are people business. So the way to be successful in this activity is really first to attract the right talent, and so being able to offer them an opportunity to grow and develop is very important. I think we are well positioned in that we offering them opportunity to be exposed to many different sectors, different geographies, different investment strategy, so that's really a key component to success. The second point is building long term relationship with partners. And the fact that we are still able to secure bilateral transaction, for this reason, proof of concept being a deliverable partner, working in a transparent manner is impacting the relationship, and that does matter.

Steve Peacher: You need to be somebody that counterparties feels reliable, can make decisions and where they know they can get the project done.

Stéphane Kofman: Absolutely.

Steve Peacher: These projects are big, they cost a lot of money, depending on the jurisdiction, they may be more or less funded by the public sector versus private capital sources. But what's the risk that, given the focus on this by politicians and public balance sheets, that private capital could get crowded out of interesting projects, because of funding by you know by governments, especially when yields are so low and it's fairly cheap for governments to access funding?

Stéphane Kofman: Now that's a very interesting question, thank you. I think, since the 2008 Global Financial Crisis we’ve seen a massive increase in public deficit and external debt, that's point one. Point two is we are seeing inflation coming back and also the potentially increase in interest rates, that’s point two. So as a whole, I think, for me the days of benign neglect monetary policy are over. And public spending and public capital will become precious commodity and will become scarce, that’s point one. Also, I think what we are seeing is that public money has a critical role to play, they are here to help us develop new technology for subsidy grounds, providing funding. There’s really a need for public capital to help developing emerging technologies and also to help the development of a pipeline of infrastructure projects. So, that's where the money should be used. It’s being said that private capital has a massive role to play that's been the case for move on to the last 10, 15 years[4], we have seen still an increased inflow of capital going into the asset class. So I think both work hand in hand, in my opinion and public capital is really an enabler for private investments.

Steve Peacher: So if you are the one in your offices for last couple days and so it's obvious how busy the team is and how busy you are. So my personal question is, how do you relax when you get to the end of the weekend, so that you can recharge for the next week, given the amount of activity that's going?

Stéphane Kofman: Well, my pet project is electronic music production. I’m a composer and player of five instruments. And I do tend not to sleep a lot during the weekend, so usually creativity is basically grabbing you at any point in time, in my case it's happening usually late in the evening and have to finish the job, so usually I ended up in the very early morning the next day. So really electronic production and the creativity is really what I enjoy most.

Steve Peacher: Sounds like you one who looks like doesn't need a lot of sleep, I’m not one of those people. Well listen Stéphane, thank you it's great to be able to hear from really smart, and to do in person, too, so thanks very much and thanks to everybody for listening to this episode of “Three in Five.”

This podcast is intended for institutional investors. The information in this podcast is not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information contained in this podcast. This podcast may present materials or statements which reflect expectations or forecasts of future events. Such forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. As such, do not place undue reliance upon such forward-looking statements. All opinions and commentary are subject to change without notice and are provided in good faith without legal responsibility.