Speaker 1: With Laurent's segle and from London and Gerard read from Berlin.
Speaker 1: This is redefining.
Speaker 2: Energy Today on Really Think Energy Child, we're going to
Speaker 2: talk about infrastructure funds and their role in financing honorables
Speaker 2: and data center.
Speaker 3: Absolutely, it's a very very important topic because I think
Speaker 3: we both agree, Lauran, there's quite a lot of changes
Speaker 3: going on in the renewable space, some good, some bad,
Speaker 3: some exciting, some not, and we need to really dig
Speaker 3: into this topic.
Speaker 2: But first of all, from our partner, A.
Speaker 1: Bloco Energy is Europe's premier leaser of ten foot container
Speaker 1: mobile batteries built in Europe with COTL best LFP cells.
Speaker 1: A Bloco Energy serves fourteen European countries, including France, Germany
Speaker 1: and the UK. A Bloco's batteries can be leased for
Speaker 1: any duration between six weeks and six years and they
Speaker 1: are monitored by the Dutch award winning platform school a
Speaker 1: block O Energy. Make your life easier, make your business
Speaker 1: more flexible.
Speaker 2: Back to the show, Yes Jr. The infrastructure fun industry,
Speaker 2: we have a technical term called AUM asset under management
Speaker 2: and that sector as quadruple over the past decade. So
Speaker 2: we need to ask ourselves, who are the players, how
Speaker 2: does it work, what are the trends? And for that
Speaker 2: we've brought an expert in the matter.
Speaker 3: Yeah. Again, it is someone that really keeps on top
Speaker 3: of the numbers, because it's all about numbers, as you said,
Speaker 3: assets under management, and actually the trend towards bigger is better,
Speaker 3: as I might say.
Speaker 2: We'll see about that. So I guess today is Zach
Speaker 2: Bentley is American editors for Infrastructure Investor, which is part
Speaker 2: of the PEI Group. The PI Group is a subscriber
Speaker 2: focused business intelligence company producing a lot of that, as
Speaker 2: you said, around infrastructure or private equity, real estate, and
Speaker 2: inform strategy and decision making of course alternative asset classes.
Speaker 4: So let's bring him on the show. Zach.
Speaker 2: Welcome to the show. Thank you, lan Well. Zach.
Speaker 3: Let's really got straight into this, I think, and I
Speaker 3: think it would be very healthful just to help people
Speaker 3: understand a little bit about what investing in the infrastructure is,
Speaker 3: what do we mean that, and why it's different than
Speaker 3: private equity all that type of stuff.
Speaker 5: The concept of infrastructure investing is you're investing in long
Speaker 5: term essential assets and it's the long term bit where
Speaker 5: it probably differs to private equity, where an ownership holders
Speaker 5: maybe three five years or so, whereas infrastructure is usually eight, ten,
Speaker 5: twelve or even a perpetual hold by a fund. That's
Speaker 5: a big difference. It's also meant to be a lower risk,
Speaker 5: lower returning form of investment. So depending on where you
Speaker 5: are in the what we call core core plus value
Speaker 5: add spectrum, you're looking at somewhere between eight of fourteen
Speaker 5: percent returns when I say investing in the essential assets. Previously,
Speaker 5: in the past that's looked quite traditional, whether that's roads, airport,
Speaker 5: water the like. Sometimes we see a few more quirky
Speaker 5: assets turn up acquired by funds. In twenty twenty five,
Speaker 5: we had chicken farming, we had firefighting, helicopters, we had
Speaker 5: the old favorite of laundry turn up. Again, it's not
Speaker 5: always what you might think infrastructures.
Speaker 6: But the key thing was what the investor is looking
Speaker 6: for is long term returns, right yeah, And so anyone
Speaker 6: who's building infrastructure where maybe the payback periods are long
Speaker 6: on us, that's the type of thing that these investors
Speaker 6: are putting money into.
Speaker 5: Right yes, And the yield based component of these assets
Speaker 5: is much more important in infrastructure than it is in
Speaker 5: private equity.
Speaker 2: For example, the type of assets they are investing in,
Speaker 2: would you say they are operational, they are about to
Speaker 2: be operational? How much risk has those infrastructure willing to take.
Speaker 2: I think if you're more at that eight percent circle
Speaker 2: range of return, you're looking at something that's more operational,
Speaker 2: whether that's operational energy assets or operational pipelines and things
Speaker 2: like that. If you're going for the higher returns, you're
Speaker 2: doing a lot more green field development, So a lot
Speaker 2: of capital expenditure going into renewables and data centers and
Speaker 2: fiberpore band for example. In the type of investment which
Speaker 2: are being made now. So we're at the middle of
Speaker 2: the decade, and let's compare with like five or ten
Speaker 2: years ago, what are the main categories clean energy infrastructure
Speaker 2: like ports, airports, tunnels, you know, or whatever, and of
Speaker 2: course data centers arriving. So how do you see the
Speaker 2: landscape of the type of investment being made.
Speaker 5: The last few years has just seen a real ramp
Speaker 5: up of firstly renewables development. It's been a part of
Speaker 5: the market for quite a long time. People now own
Speaker 5: very large development platforms and there's a constant build out
Speaker 5: of those, we have the data center market, which in
Speaker 5: the last few years has exploded. And it's important to note,
Speaker 5: and maybe we've been ten minutes onto a podcast and
Speaker 5: haven't used the word AI yet, but it's important to
Speaker 5: know that the data centers were booming before AI, but
Speaker 5: the AI tail winds have just sent this into into
Speaker 5: a way that we've kind of never seen this market before.
Speaker 5: You know, we used to have a sector with an
Speaker 5: infrastructure and we called it telecoms, and that just used
Speaker 5: to be towers, but sort of the digital infstructure space
Speaker 5: has broadened so much more with data centers and fiberpore band. Obviously,
Speaker 5: during COVID, we saw a big fall in the interesting
Speaker 5: airport assets, for example, or toll roads where people were
Speaker 5: getting revenue based on the toll being paid. Airports are
Speaker 5: much more in fashion now than five years ago. There's
Speaker 5: been quite a lot of expenditure into those by infrastructure
Speaker 5: funds in the last couple of years. I think sort
Speaker 5: of people have understood the risk that is now involved
Speaker 5: in that, and we used to see a lot more
Speaker 5: activity in what was called social infrastructure. That's a much
Speaker 5: smaller part of the market these days.
Speaker 3: Zach can I maybe ask you to sort of put
Speaker 3: in context really the size of infrastructure investments across the
Speaker 3: world and just give us an idea of whether this
Speaker 3: is growing, what sectors are Obviously you talked about AI,
Speaker 3: we can see that, but just to put it all
Speaker 3: into relativity so that we can really get a sense
Speaker 3: of what's going on in the market.
Speaker 5: Infrastructure investor. We recently published our fundraising statistics for twenty
Speaker 5: twenty five, and that told us that this was the
Speaker 5: biggest fundraising year ever on record, with nearly three hundred
Speaker 5: billion dollars raised in the year. People used to look
Speaker 5: back at twenty twenty one and twenty twenty two as
Speaker 5: the heated days of fundraising, and that was just shy
Speaker 5: of two hundred billion in those two years. So this
Speaker 5: three hundred billion is a massive vamp up. If we
Speaker 5: go back ten years, it was fifty billion in the years,
Speaker 5: So the multiples are expanding, the size of the funds
Speaker 5: are getting much bigger. What I would caveat that with
Speaker 5: is this three hundred billion is based on when the
Speaker 5: funds closed, and that's when we consider it raised. So
Speaker 5: we have actually had a couple of years of more
Speaker 5: fallow fund raising in the last two years. And what
Speaker 5: we've seen in twenty twenty five is there's a lot
Speaker 5: of funds that were maybe launched in twenty twenty three
Speaker 5: or so have got to final close slower than they
Speaker 5: might have done previously.
Speaker 2: What you're saying is the funds getting bigger, but it
Speaker 2: takes more time to raise them.
Speaker 5: Yes, the average time for fund to close these days
Speaker 5: is about two years, whereas previously they used to be
Speaker 5: a year and a half or so.
Speaker 2: And of course one of the conclusions you also draw
Speaker 2: is that the big fund manager are just getting bigger.
Speaker 2: There is a generic consolidation and I guess around the pipeline,
Speaker 2: the team, the access to data, I don't know, but
Speaker 2: I mean it looks like it's always the same name
Speaker 2: and the numbers get just bigger and bigger. Yeah.
Speaker 5: Within our statistics, the top ten funds that close into
Speaker 5: twenty twenty five accounted for nearly half of all the
Speaker 5: capital rays. I think that gives you a window into
Speaker 5: that and it's becoming increasingly condensed around those top players.
Speaker 5: Where many of those players and I'm thinking names that
Speaker 5: a lot of people might know, like Brickfield Global Infratructure Partners, KKR, Macquarie.
Speaker 5: They won't have just one string to their bow like
Speaker 5: they used to. They'll likely have two, three, four funds
Speaker 5: in market any given moment addressing different parts of the market, you.
Speaker 2: Mention some of the names, and of course another JPI
Speaker 2: is part of black Rock, and black Rock was already big.
Speaker 2: I mean here, you're really talking about an absolute behemos.
Speaker 2: If you take your top ten, how many are US
Speaker 2: based and of course is operation all around the world,
Speaker 2: and how much are European based?
Speaker 5: A majority would consider themselves US based, even though the
Speaker 5: funds that they've raised are usually global infrastuch funds. Maybe
Speaker 5: Macquarie is slightly different in that they've always raised in
Speaker 5: America's dedicated funds, at European dedicated fund, an Asian fund,
Speaker 5: But generally most of these players will be US based
Speaker 5: with global outlooks. In terms of the largest players, you
Speaker 5: do have some European head courted ones like EQT and
Speaker 5: Copenhagen Infrastructure Partners, but it's predominantly headquartered in the US.
Speaker 4: Can we move a little bit into sort of the
Speaker 4: area that AZEF and Lauran do a lot of work,
Speaker 4: which is this whole area of energy and can you
Speaker 4: talk a little bit just from a high level what
Speaker 4: you're seeing there in terms of trends.
Speaker 5: I'm focused on the Americas and we've had a busy
Speaker 5: year in renewables where a lot of the tax credits
Speaker 5: have been rolled back by the Trump administration, and there's
Speaker 5: been a lot of project cancelations. Even most recently was
Speaker 5: the just at the end of twenty twenty five, the
Speaker 5: Trump administration canceled permits for five offshore wind projects on
Speaker 5: the East Coast, one of which was actually delivering power
Speaker 5: to the grid already, another one was expecting to do
Speaker 5: so in a few months time. These were finance projects
Speaker 5: which were essentially almost ready to go and they were canceled.
Speaker 5: So that's been when it comes to renewables in the US,
Speaker 5: people over the last year have been taking stock where
Speaker 5: can they play in this region that's not going to
Speaker 5: get affected by the administration. And then in Europe you've
Speaker 5: had several years of large scale development. You've seen a
Speaker 5: lot of trouble in Europe with offshore wind too. Several
Speaker 5: auctions in the Netherlands and Germany. In the UK have
Speaker 5: not produced the results they've wanted to. It hasn't been
Speaker 5: considered particularly invested friendly, but you're also seeing an incredible
Speaker 5: amount of price volatility in Europe, especially if you look
Speaker 5: at a market like Spain. The blackout in Spain exposed
Speaker 5: what was a massive underdevelopment of battery storage, which many
Speaker 5: other countries have been very good at, exposed some real
Speaker 5: requirements that are needed if Europe is going to control
Speaker 5: the load of energy that's coming onto the grid.
Speaker 2: One of the trends, and you're going to tell me
Speaker 2: if you see the same thing, is decretion of platforms.
Speaker 2: So in fact, the infrastration funds don't invest in assets anymore,
Speaker 2: the great dedicated platforms, whether it's around batteries or it's
Speaker 2: around now what they call ipp So they don't just
Speaker 2: own wind farm or solar parks. They put them together
Speaker 2: with a management team who's going to make much more
Speaker 2: granular management of the energy situation. Do you see that
Speaker 2: platform concept being more popular.
Speaker 5: Yes, It's been a long time since people were just
Speaker 5: investing in a singular asset through an infrastructure fund. The
Speaker 5: platform has become the way to go, just in terms
Speaker 5: of scale and reppicability of what's worked. You could put
Speaker 5: that into multiple projects rather than just owning a single project.
Speaker 5: And it's not just the platforms. It will be very
Speaker 5: common for an infrastructure fund manager to have what they'll
Speaker 5: call either renewable funds or an energy transition fund. These
Speaker 5: funds were thirty two percent of the fundraising capital five
Speaker 5: years ago and that's now forty four percent in twenty
Speaker 5: twenty five. So it's really taking up out of the
Speaker 5: market there.
Speaker 2: And of course the big development of past three years
Speaker 2: is so all around that center theme, but here it's
Speaker 2: we are going kind of far away from what used
Speaker 2: to be a core product with a lot of guaranteed
Speaker 2: revenue from government and so on, and here it's really
Speaker 2: the all AI and the hope or the faith that
Speaker 2: the I will deliver. So how important all those data centers,
Speaker 2: because we've seen a few of the names you have
Speaker 2: mentioned before we involved into those development.
Speaker 5: We need to separate the data center of development both
Speaker 5: for there's the cloud computing requirements and there's the AI requirements.
Speaker 5: We all don't know where the AI is going to
Speaker 5: land out, whether that's in two, three, four years time.
Speaker 5: We do that we're going to always need these cloud
Speaker 5: computing requirements, and so that remains a driver for data
Speaker 5: center development through infrastructure funds. If you're placing all of
Speaker 5: your faith in AI coming off, that's maybe a bit
Speaker 5: of a gamble. That's you know, as you say, not
Speaker 5: the kind of thing that would be backed by a
Speaker 5: long term contract previously. We are seeing a lot of
Speaker 5: evolving contract developments happening the blue out case with Meta
Speaker 5: last year, where if Meta cancels the contract four years
Speaker 5: in that blue Our's debt still gets repaid. We're seeing
Speaker 5: some evolving structures where investors are maybe getting protected in
Speaker 5: case the AI story doesn't work out, or that the
Speaker 5: chips that are within data centers are improving. But the
Speaker 5: data center story without AI is still a massive story
Speaker 5: that's just going to be continuing, and it's completely intertwined
Speaker 5: with energy now, whether that's renewables or the broader conventional space.
Speaker 5: The first for power is driving this market in a
Speaker 5: way that we haven't seen it before.
Speaker 6: So Zach, I'm really interested in where is the new
Speaker 6: capital going.
Speaker 4: Is it all going into AI and energy, or where
Speaker 4: is it moving to.
Speaker 5: We're still at the space where most of the infrastructure
Speaker 5: funds being raised are global funds and global generalist funds.
Speaker 5: This is trying to target all forms of infrastructure and
Speaker 5: within a generalist fund, you're going to see quite a
Speaker 5: bit of renewables, energy data centers, but few managers will
Speaker 5: want to be over exposing themselves to single sectors. Within
Speaker 5: those generalist funds, what you do see is much larger
Speaker 5: data center dedicated funds. If they take, for example, twenty
Speaker 5: twenty four, our fundraising figures showed data center dedicated funds
Speaker 5: were just four percent of the capital, and then in
Speaker 5: twenty twenty five they're twenty eight percent of the capital.
Speaker 5: So those kind of dedicated funds are really ramping up, right, Okay,
Speaker 5: And of.
Speaker 2: Course I guess a lot of those fund manager way
Speaker 2: back when it sounds like it's ancient times, they were
Speaker 2: all net zero and everything, and now they don't have
Speaker 2: any problem reinvesting into fossil fuel infrastructure. So all those
Speaker 2: ESGY claims they been dropped are How do.
Speaker 5: You see that this has been a really interesting dynamic
Speaker 5: over I'd say the last eighteen months or so.
Speaker 2: Yeah, you're right.
Speaker 5: There was a time where we were ESG everything, and
Speaker 5: you had lots of both the investors themselves, so the
Speaker 5: pension funds and the insurance companies and the like, and
Speaker 5: were several fund managers not or were shying away from
Speaker 5: things like gas related and structure, whether gas fire power
Speaker 5: stations or gas pipelines. And you've seen a much more
Speaker 5: wider acceptance of that kind of investment from a lot
Speaker 5: of funds now. And the more interesting dynamic is that
Speaker 5: it's being wrapped up in an energy transition blanket. At
Speaker 5: the same time, you have a player like Blackstone, which
Speaker 5: has an energy transition fund and they've now got several
Speaker 5: gas fired power plants within that energy transition fund. We
Speaker 5: saw also last year a US player, Exelsia Clean Energy,
Speaker 5: they struck up a partnership to integrate some gas into
Speaker 5: their renewable portfolio. We've seen another fund run by Denam
Speaker 5: Capitol under the label Sustainable Infrastructure Fund, and that agreed
Speaker 5: a deal to convert coal plants to gas. I think
Speaker 5: the acceptance of gas as a sustainable form of investment
Speaker 5: has come leaped and bounds over the last year or two.
Speaker 2: Yeah, I can't wait to see the vlady Mere Sustainable Fund.
Speaker 4: What do you mean? I just set that up last week.
Speaker 5: The Russian Ukraine War did change a lot of things
Speaker 5: within this respect. If we're talking about this dynamic, there
Speaker 5: have been two main things that have really shaped The
Speaker 5: Russian invasion of Ukraine just reminded investors and managers that
Speaker 5: gas is needed in this system, at least for the
Speaker 5: foreseeable future. Perhaps we worse to hasty in writing it off.
Speaker 5: And then there's also just the massive energy demands that's
Speaker 5: coming from AI and data centers. That's also reminding us
Speaker 5: that this can't all run unrenewables.
Speaker 2: Because you talk about geopolitics and security, do you see
Speaker 2: also the infrastructure or people near some more defense assets
Speaker 2: or still marginal.
Speaker 5: That's a conversation that's happening in Europe quite a bit.
Speaker 5: What we see from our perspective is lots of people
Speaker 5: like the idea of investing in defense as a potential
Speaker 5: infrastructure asset. There's a real lack of defense infrastructure assets
Speaker 5: that would fit into someone's portfolio. There's really few investable
Speaker 5: opportunities that you would want from an infrastructure fund in defense.
Speaker 2: It's the beginning of the year, so we did our
Speaker 2: prediction a few weeks ago, but I like to continue
Speaker 2: make predictions. I can tell you that autonomous driving with
Speaker 2: robot taxi fleet, that's going to be a new chapter
Speaker 2: in infrastrctory investing. That's what I think. You hear the
Speaker 2: same thing around Eve's fleet and stuff like that, or
Speaker 2: am I just bubbling?
Speaker 5: Call me a traditionalist, but I don't see that entering
Speaker 5: into people's portfolios in the short term. We did see
Speaker 5: a few years ago a lot of ev charging infrastructure
Speaker 5: investments and performance on those was quite mixed. And then
Speaker 5: a lot of the uncertainty on this is driven by
Speaker 5: part of the pan the automobile industry, who quite wavering
Speaker 5: on some of their commitments to electric vehicles. If you've
Speaker 5: got that side of the Shane wavering, you're not going
Speaker 5: to find the instruction investors going into that.
Speaker 3: Okay job, Yeah, I suppose when I'd love to just
Speaker 3: talk a little bit about this sort of consolidation in
Speaker 3: the market and what seems to be happening. What seems
Speaker 3: to be happen is the big guys are getting bigger
Speaker 3: and they're also making acquisitions and stuff like that. Could
Speaker 3: you talk about why that is and how you see
Speaker 3: the future in terms of the specialist asset managers in
Speaker 3: the infrastructure area.
Speaker 5: It's quite announce picture. As I said before, we're seeing
Speaker 5: a much larger presence across the infrastructure fundraising market by
Speaker 5: say our largest ten to fifteen managers or so if
Speaker 5: I take this to renewables, we had some massive fund
Speaker 5: closers last year. Brookfield's Global Transition Fund raised twenty billion.
Speaker 5: You had Coping Infrastructure Partners that raised twelve billion euros.
Speaker 5: Clearly there's a lot of money being focused at the
Speaker 5: top there. What I would say is a lot of
Speaker 5: investors do also prefer more of a pivot to mid
Speaker 5: market investing. And you see this kind of thing manifested
Speaker 5: in the Tillery Energy from Finland. They just raised a
Speaker 5: five hundred and fifty six million European renewables fund, and
Speaker 5: we see plenty of kind of that more mid market
Speaker 5: approach to renewables at the same time. So while the
Speaker 5: big guns will grab the headlines, I think there's still
Speaker 5: plenty of activity beyond that.
Speaker 2: I agree because when you're a big gun and you
Speaker 2: have a fund of that size, you know, you don't
Speaker 2: even open anything if it's below say five hundred million,
Speaker 2: right because on the top of that, and I guess
Speaker 2: a lot are teaming up with like the global soffeering funds.
Speaker 2: So you see a lot of things happening with the
Speaker 2: gup from say Singapore or the girlf Those guys, they're
Speaker 2: not interested in fifty or one hundred million tickets, and
Speaker 2: there's a lot of things happening in those zones.
Speaker 5: Yes, And the question that people often have with bigger
Speaker 5: funds is what's their route to exit and is an
Speaker 5: asset too big? Generally, the larger funds do have a
Speaker 5: good track record of exit and exit multiples, but there
Speaker 5: is an increasing focus from investors more towards mid marketshly
Speaker 5: because of a worry as to who is going to
Speaker 5: be the eventual buyer from the larger funds in terms
Speaker 5: of consolidation. We are going to see quite a bit
Speaker 5: of that over the next couple of years, particularly in
Speaker 5: the US, but also in Europe as the regulatory effects
Speaker 5: take hold. We maybe don't need one hundred and fifty
Speaker 5: two hundred renewable, needy developers out there.
Speaker 4: Finally, on that topic there, why don't the pension funds
Speaker 4: just do it themselves?
Speaker 5: You do have pension funds who invest directly. That was
Speaker 5: populated twenty years ago by lee Canadian and Australian pension funds,
Speaker 5: but a lot of pension funds don't have the resources
Speaker 5: to be doing direct investments. It takes up an incredible
Speaker 5: amount of work in due diligence and finding opportunities, and
Speaker 5: they're much better set up to commit funds to infrastrutual
Speaker 5: fund managers and of let them do the work, and
Speaker 5: you do get a much bigger interest in co investment
Speaker 5: these days, but that's not the same as the pension
Speaker 5: funds doing themselves.
Speaker 3: Zach crystal Ball take it out twenty thirty. What's the
Speaker 3: world of infrastructure investing look like.
Speaker 5: I don't want to sound like a guy who was
Speaker 5: maybe in the early nineties saying that this email thing
Speaker 5: is never going to take off, but I am skeptical
Speaker 5: that the wave of investment that we have at the
Speaker 5: moment in AI and AI related infrastructure maybe might not
Speaker 5: be as fruitful as we think it might be in
Speaker 5: a few years time. So I think that's definitely one
Speaker 5: thing to be looking at. I'm very interested to see how,
Speaker 5: especially in the US, how renewables perform. There's a lot
Speaker 5: of challenges to come. We're going to see as a
Speaker 5: result of some of the changes that have happened in
Speaker 5: the last year, we're going to see a rush of
Speaker 5: financing over the next year that might lead to us
Speaker 5: slow down in maybe two three years time after that,
Speaker 5: as the market gets used to a different way of
Speaker 5: doing things. Going back to what I said before about gas,
Speaker 5: that's gonna become a much more investable opportunity. If we
Speaker 5: have this big investment wave in data centers, they need
Speaker 5: to be powered by something that the big tech giants
Speaker 5: can rely on. Whether that's fair or not. On renewables,
Speaker 5: we're going to see a much wider embrace of gas
Speaker 5: and gas related structure.
Speaker 2: And will the current funds be even bigger.
Speaker 5: That's an interesting one. The funds are wary about asking
Speaker 5: investors for ever increasing capital raises, so we had a
Speaker 5: story recently that Brookfield will be looking to raise about
Speaker 5: twenty five billion for it's six fifth such a fund
Speaker 5: this year, which was the same target for its fifth
Speaker 5: such a fund, And that's a bit of a step
Speaker 5: change that hasn't really happened before. But I think the
Speaker 5: managers are wary that these funds are getting bigger and
Speaker 5: investors are being asked to pay up all the time.
Speaker 4: Well, Zach, thanks very much for this.
Speaker 3: It's been great players are actually having you on the show,
Speaker 3: and certainly I've learned a huge amount.
Speaker 4: Thank you.
Speaker 2: Thank you for having me job. That was a very
Speaker 2: very rich conversation, sure was, Laurent.
Speaker 4: So where do you want to start?
Speaker 2: First of all the topics we didn't talk about, and
Speaker 2: I'm pretty sure they are a bit touchy, so you know,
Speaker 2: I'm sure they have a nice dialogue. The first is
Speaker 2: the role of interest rates. The fact that they were
Speaker 2: extremely low last decade and then they went up, now
Speaker 2: they're going down again. That is a huge impact on
Speaker 2: that industry.
Speaker 3: Yeah.
Speaker 4: Actually, I think Loren, particularly for renewables, because let's talk.
Speaker 3: About what the play the game was for the last
Speaker 3: fifteen years, which is you developed the assets and then
Speaker 3: you sell it to lower cost capital provider and they
Speaker 3: aggregate them up and they sell them and turn to
Speaker 3: another lower cost capital provider, and even sometimes they took
Speaker 3: it again, made it bigger and sell it to the
Speaker 3: eventual owner of the assets. But that game is now up,
Speaker 3: and I think it's important to explain why that game
Speaker 3: is up.
Speaker 2: Yeah, And of course of the game with the refinancing
Speaker 2: at always cheaper interest rates. Now because it's an asset class,
Speaker 2: the reterm it needs to deliver is any way linked
Speaker 2: to the interest rates. In general, if the interest rates
Speaker 2: are at one two percent. You're an infrastructure fund, you
Speaker 2: deliver six to seven, people think you're a god. But
Speaker 2: when the interest rates they go to four or five,
Speaker 2: now you need to deliver eight or ten percent. Now.
Speaker 2: The problem is because this is long term, you've locked
Speaker 2: in a lot of five percent in your portfolio. So
Speaker 2: the all rebalancing is happening now.
Speaker 3: And it's complicated, right, makes everything complicated. It also means
Speaker 3: for renew of us going forward that your cost of
Speaker 3: capital has gone up, and that changes all that dynamics exactly.
Speaker 2: We didn't talk about management fees, but they are pretty comfortable.
Speaker 2: Generally it's about one percent or two percent peranum, plus
Speaker 2: some bonuses if you reach a certain the rate. But
Speaker 2: that's normal. It's very complex. These are i liquid market.
Speaker 2: They require a lot of expertise. And if you look
Speaker 2: at the teams of those infrastructure funds, and of course
Speaker 2: we meet them on a regular basis, those guys are
Speaker 2: really good.
Speaker 4: Ah, I'm going to say the exact opset. You're smoking
Speaker 4: something there. I think they've been spoiled for the last
Speaker 4: fifteen years.
Speaker 3: And the reason is is because none of them have
Speaker 3: to manage a power prant with anything more than an
Speaker 3: Excel sheet. It's been all done virtually and they've had
Speaker 3: no risk because basically everything they've produced they've got paid
Speaker 3: for it. They are now moving into a much more
Speaker 3: complex world where first and foremost they have to accept
Speaker 3: that there's volatility in their power crisis. Secondly, you don't
Speaker 3: have these long term government back power purchase agreements in place,
Speaker 3: So the whole nature of the industry is changing, and
Speaker 3: I think it's going to be very difficult for a
Speaker 3: lot of these guys to make the changes that are
Speaker 3: needed to succeed over the next decade.
Speaker 4: Okay, So no, no, no, you have to answer that.
Speaker 4: Do you agree where do you disagree?
Speaker 2: You are great at doing theories. I look at what's happening,
Speaker 2: and if I take an example, which is no okay, JERRL,
Speaker 2: it's very clear you're always right in theory and wrong
Speaker 2: in practice, and me I'm always wrong in theory but
Speaker 2: right in practice. So that's why you're being a good
Speaker 2: team of showyn uk.
Speaker 4: Okay.
Speaker 2: If you look the past three months, we had Apollo
Speaker 2: who made a deal with Hosted for developing on C
Speaker 2: three six billion. Recently with KKR doing a deal with
Speaker 2: w e fifty percent of three kikawat under AR seven
Speaker 2: another three billion. So those guys DIAD invest now because
Speaker 2: it's of showIn, it's public auction, so the revenues are
Speaker 2: guaranteed for fifteen or twenty years. Otherwise they create their platforms.
Speaker 2: We had the epizarre last year with emmanuel Le Geo
Speaker 2: KKR and the investing platforms, and those platforms, I can
Speaker 2: tell you you've got very competent guys. IPPs gone to a
Speaker 2: global and they manage their portfolio, they edge the trade.
Speaker 2: So everything you said, sorry, that's a bit of old school.
Speaker 2: The infrastructual funds have already found answers to the valiatility
Speaker 2: of their portfolio.
Speaker 3: But I'm going to come back on that and I'm
Speaker 3: going to say you're mixing up private equity and infrastructure.
Speaker 3: The game in renewables has been all infrastructure. KKR is
Speaker 3: not an infrastructure investors, they're a private equity investor. So
Speaker 3: they're going in and creating the platforms that actually are
Speaker 3: suitable for managing these new renewable assets going forward, and
Speaker 3: they require and they get a higher return for what
Speaker 3: they're doing. The infrastructure guys quite happy to just to
Speaker 3: get a single digit return and pay the dividend every
Speaker 3: quarter and everybody's happy that world has gone.
Speaker 4: That's where I'm coming from, right, and your dead right.
Speaker 3: There's some really compelent guys out there, and the KKR
Speaker 3: guys in particular, we like what they're doing around. We
Speaker 3: can't disagree with them anyway, you.
Speaker 2: Know, Okay, Jah, before we go, we want to congratulate
Speaker 2: not Ballard, who came on our episode two hundred to
Speaker 2: talk about these two hundred slides while they're out and
Speaker 2: they are extraordinary. We put a link in the show notes.
Speaker 4: Great Nash and I again, we haven't spoken this year.
Speaker 4: I'm just watch it. Goreage twenty twenty six.
Speaker 2: Yeah, don't worries all over the other podcast. And finally,
Speaker 2: if you want to know more about the infrastructure, then
Speaker 2: we talk about it during our interview with Zach. The
Speaker 2: big event is in Berlin twenty four to the twenty
Speaker 2: seven of March. You've got more than three thousand infrastructure
Speaker 2: professionals there. So if you're into infrastructure investing, we'll put
Speaker 2: the link of the event in the show notes. Yep,
Speaker 2: a Ford that and the Unfortunately for you, I'm not
Speaker 2: going to sing this episode.
Speaker 4: God when you said unfortunately, that could have meant anything.
Speaker 2: Okay, my friend, to you next week look forward.
Speaker 3: To Thank you for listening to Redefining Energy. Don't forget
Speaker 3: to rate the show and subscribe on Apple, Podcast, Spotify,
Speaker 3: or the platform of your choice.