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The Street View

Transforming Infrastructure

08 March 2022
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Infrastructure is increasingly essential to the world’s economy. Whether it is ensuring a constant supply of clean energy wherever it is needed, enabling greater inclusiveness through improved digital communications, or simply creating efficient transport networks, societies today cannot function without high-quality, sustainable infrastructure. The COVID-19 pandemic has only served to throw an even greater spotlight on how reliant we all are on the infrastructure assets that keep the world moving.

For investors, the fact that infrastructure is now so essential to everyday life means it is an ever more appealing prospect. But the vital role it plays is just one of the reasons we believe it should be on their radar. Other aspects of infrastructure investing also make it a compelling proposition.

FOR INVESTORS, THE FACT THAT INFRASTRUCTURE IS NOW SO ESSENTIAL TO EVERYDAY LIFE MEANS IT IS AN EVER MORE APPEALING PROSPECT

Firstly, the sector’s business model makes it an important component of a portfolio. Many projects have long-term contracts: purchase agreements from assets such as power stations can provide predictable, inflation-protected cashflows for many decades, making them ideal for institutional investors.
Secondly, the investment potential for the future is enormous. According to BloombergNEF’s New Energy Outlook 2021, achieving net-zero carbon emissions by
2050 will require as much as $173 trillion in investments in the energy transition. There is therefore a huge need for capital to be mobilised and invested in the asset class.

Thirdly, and perhaps most significantly, there are the positive sustainability impacts. Infrastructure can help realise a low carbon future, and deliver a Just Transition by supporting economic development and equitable and inclusive growth. Whether it is investing in clean energy to power reliable grids, or in data centres to ensure more people have access to more information, infrastructure has a key role to play in ensuring a fairer, more equitable, more inclusive society.

Finally, many investors who have bought into infrastructure have struggled to source deals or execute with competence. We know it isn’t enough to identify a need as asset managers we have to be able to execute effectively. Operational excellence can involve bringing many skill sets together -civil engineering, financial skills, energy management, real estate experience for instance combine together in the fast growing digital infrastructure space, a growing business space for us.

What does all this mean for Actis?

One of the main sectors we are focusing on is the energy transition – investing in renewables, high-growth utility distribution businesses, offshore wind and, where appropriate, gas, which we believe is a fuel that has a role in the transition towards Net Zero. We are also investing in the digital transformation, where we are focusing on data centres, fibre-optic cables and towers.

We are a global investor in sustainable infrastructure and we unlock value wherever it is found. But we do not believe the level of opportunity is the same everywhere. We focus our efforts where 85% of the world’s population lives and where 70% of the world’s investment needs in the future will be required. There are good reasons for this focus: we have decades of experience and a proven track-record across Africa, Latin America and Asia, and we are able to generate high, risk-adjusted returns that are double the levels you might typically see in a developed market.

Sustainability sits at the core of our investment philosophy. Some of the biggest positive impacts we create are by providing reliable, affordable, clean energy that helps support economic development where it is most needed. Meanwhile when it comes to the digital transformation, our ambition is to create an environment where businesses can reach more customers, support a greater level of e-commerce transactions, facilitate mobile banking and improve education, leading to more inclusive economic development.

We also believe that making investments that are sustainable isn’t just good for society’s wellbeing: it means better investment performance and greater value creation. Our stakeholders – be they customers, communities, governments, suppliers or lenders – are an integral part of this strategy. We aim to create sustainability leaders by ensuring that the businesses we invest in are among the best managed in the world, and employ best global practices to create value linked to corporate governance, health and safety, environmental and social performance. This in turn makes these businesses more valuable to buyers which is what we call values drive value.

This first edition of The Street View in 2022 looks more closely at Actis’ role in transforming infrastructure for a better tomorrow. It examines the current infrastructure gap, the role of private capital in closing it, the challenges in investing in the sector, and how to resolve them.

Ewen Cameron Watt, Editor-in-Chief, and Joonas Taras, Actis, begin by examining how the infrastructure investment opportunity can be unlocked and Olivia White, from our Sustainability team, highlights the imperative to build infrastructure that drives truly sustainable and inclusive economic growth. We then take a regional focus, first looking at Central and Eastern Europe where Neil Brown, Partner and Head of the Investor Development Group interviews Lucyna Stanczak-Wuczynska, Chair at BNP Paribas Polska and Strategic Advisor at Actis to discuss the opportunities and unique features of investing in infrastructure in this region. As we publish this edition, recent world events have led to a humanitarian crisis unfolding in Ukraine. This will have devastating effects in the region short term and our hearts are with those affected. We do believe that our long term investment themes will stand the test of time and hence we have taken the decision to still publish this piece.

This is followed by Latin America, where Alberto Estefan, Marcelo Guerra and Mauricio Carvajal in the Energy Infrastructure team give an overview of Latin America’s infrastructure and the role of governments across three sectors – towers, toll roads and power generation. This is followed by interview case studies from three of our portfolio companies in the region who give on the ground insights, a section that we’ve called Company Voices, – Atlas Renewable Energy, Babilônia and Pelicano.

Simon Ogus, CEO, DSG Asia Ltd and Rahul Agrawal, from the Energy Infrastructure team at Actis, provide commentary on infrastructure and growth in Asia, and Sowmya Narasimham, from the Energy Infrastructure team provides an investment thesis on infrastructure in India. This is followed by Company Voices interview case studies from An Phat Holdings and Sprng Energy. And finally, Lisa Pinsley, Energy Infrastructure, and Funke Okubadejo, Real Estate, compare and contrast the Middle East and Africa, looking at the challenges and opportunities of infrastructure investment, and highlighting the power of partnerships in these regions. This is followed by a Company Voices interview of our portfolio company, Lekela.

Taken together, I hope you’ll agree that the stories in this edition of The Street View give an insight into the unique role Actis is playing in transforming infrastructure for a better tomorrow. At COP 26, the world talked about its ‘decade of action’ – but at Actis we are already embarking on our third, bringing together operational experience and sustainable investing to deliver positive development. Our deep sector knowledge – many of us have decades of experience in the industry – means we have a significant level of understanding about the most effective paths to value creation. Infrastructure benefits from investors who know their business. The fact that we have teams on the ground in our markets gives us insights into local environments which are so critical to a successful investment. And we have clear leadership in many of the countries we operate in, which means we are able to generate compelling performance for our investors.

AT COP 26, THE WORLD TALKED ABOUT ITS ‘DECADE OF ACTION’ – BUT AT ACTIS WE ARE ALREADY EMBARKING ON OUR THIRD, BRINGING TOGETHER OPERATIONAL EXPERIENCE AND SUSTAINABLE INVESTING TO DELIVER POSITIVE DEVELOPMENT

Building better infrastructure is critical if the world is to meet its economic, environmental, inclusiveness and sustainability goals. By focusing on the countries which we believe have the greatest needs – and hence present the greatest opportunities – Actis is determined to be at the forefront of mobilising global capital so it can have the most effective outcomes – for investors and societies alike.

 

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