As governments put increasing focus on the energy transition to combat climate change, a portfolio manager at Quaero Capital explains why he likes infrastructure investing in 2024. A number of large asset and wealth management firms have pushed into the space in recent weeks. 

Investors should position for a big uptick in infrastructure spending, often fuelled by governments after a period of neglect, a European firm has told this publication.

In an exclusive interview with WealthBriefing, Mark Ebert (pictured) at Quaero Capital highlighted that a wave of money is coming in from governments to fund infrastructure projects, largely due to the transformation of the energy sector.

“Governments realise that they have largely neglected infrastructure spending. Since 2017, there has been so much growth in infrastructure expenditure, notably on renewable energy projects,” Ebert said.

Ebert co-manages the Infrastructure Securities Fund which focuses on investment tailwinds supporting growth in infrastructure. He said that the energy transition is probably the major investment theme of the decade, and the least risky approach to exploiting the theme is through infrastructure.

Ebert concentrates on the electricity transmission and distribution companies that connect renewable energy sources to the expanding base of power users, the companies which build out the networks of wires. He has no exposure to renewable developers or unhedged power producers.

The explosion of data related to 5G and AI is the other tailwind of the decade, and there he invests in the enablers: the picks and shovels such as telephone towers and data centres. He has no exposure to technology companies. The demand for clean water and sustainable waste management is another strong tailwind that Ebert focuses on. He believes that the next few years should be a great period for his strategy.

There's been a flurry of activity by wealth and asset management firms in this area recently. Vontobel, for example, recently said it is to acquire a “significant minority stake” in Ancala Partners LLP, a London-based independent private infrastructure manager. That transaction marked Vontobel’s entry into institutional private markets, and chimes with a trend of other firms buying into the $1 trillion infrastructure story, notably BlackRock.

Quaero Capital Funds (Lux) – Infrastructure Securities (listed)
The fund, which outperformed the index in 2023, provides a liquid alternative to what has been traditionally the domain of private equity. It aims to provide a long-term thematic vehicle with daily liquidity for investors wanting to take advantage of the sector’s characteristics: low correlation to markets and business cycle, high correlation to price indices, diversification benefits for an equities portfolio and protection in difficult markets.

The fund aims to capitalise on the long-term impact of the infrastructure sector by supporting companies which are industry-leading on environmental and social responsibility and stewardship, or are leading to improvement, provided that they follow good governance practices. Favoured businesses are companies with long-term contracts to build, maintain and operate infrastructure in sectors such as social infrastructure, communications, transportation, energy and water/waste sub-sectors.

The fund is heavily weighted towards the US, followed by France, Spain and Canada. One of Ebert's favourite stock picks is Ferrovial, a Holland-based Spanish multinational firm which operates in the infrastructure sector for transport and mobility. The mobility and infrastructure department is responsible for managing renewable energy, sustainable mobility and circular economy projects.  

Another top stock pick is transmission and distribution asset owners: SSE and RWE. SSE is a UK utility company operating three businesses: renewable energy generation, regulated transmission and distribution networks, and flexible generation. “SSE is deploying billions of pounds' worth of capex in onshore and offshore wind farms while investing in the required transmission network. This will generate double-digit profit growth for these two highly-visible and defensive businesses,” Ebert said.

“Similarly, the German power generator RWE is poised to benefit from its installed base of gas plants that will stabilise the grid while the group increases its renewable installed base from 13 GW to >40 GW in 2030. While the near-term profit trajectory is dampened by the phasing out of their nuclear and coal assets, and the moderation of spot power prices, underlying profits are growing at a double-digit rate,” he added. German asset manager DWS is also positive about the infrastructure market in 2024. See more here.

Founded in 2005 in Geneva, Quaero Capital is an independent specialist fund management group. It offers a range of investment strategies through its Luxembourg, Swiss and Irish regulated funds as well as private equity funds investing in European infrastructure and French real estate.