On November 4, 2016, CFANY held the 4th Annual Global Infrastructure Conference with a series of panels highlighting various sectors of infrastructure and the increasing importance of investment in infrastructure. This conference was presented by CFANY’s Global Investing Leadership Group as a part of their efforts to keep members up to date with global trends in the investment markets.
Special guest, Jae Yoon, CFA, delivered a keynote address outlining the investment outlook of infrastructure. He emphasized that in the emerging world, infrastructure allows for the rebuilding of hospitals, roads, houses, creates access to electricity, safe drinking water, basic sanitation, and improves the areas of technology and sustainable energy. In developed countries like the U.S, there has been an increasing amount of private sector financing in the power/electricity and communication sectors. He also introduced some alarming statistics that really stressed the importance of investment in infrastructure: the world needs $50 trillion of infrastructure investment through 2030 to keep pace with projected growth. Yoon also pointed out that a 1% increase in infrastructure investment leads to a 1.2% increase in GDP growth.
The opening keynote speaker, Mark B. Florian, further explored this investing outlook through the perspective of a dynamic marketplace, specifically in energy infrastructure. Changing energy markets create opportunities to invest in cleaner generation, midstream (transportation of resources), and distributed energy. However, these investments are affected by various factors including changes in government regulations, new technologies shifting costs, and massive capital costs. Florian also discussed recent trends in the marketplace. With more economies of scale, the costs are less. As the U.S becomes more self-sufficient, change in infrastructure investment is necessary. After a 20-year decline, US oil supply dramatically increased as production continues to change global dynamics, despite its price volatility. This is a result of better technology, efficient capital markets, and entrepreneurial approaches. The gap between energy imports and exports is becoming narrower and is expected to balance around 2028. Renewables are expected to play a significant part in the future power generation mix. He concludes with a recommended investment strategy: “redesign the template” – search for opportunities in newer markets, “build a moat” – ensure that investments can withstand a dynamic environment, and finally “be ready to pivot” – plan for the worst and monitor investments.
With a strong opening that set the tone for the rest of the day, the panels that followed focused on specific areas of infrastructure that allowed for an individual perspective for each sector of investment.
Dan Aschenbach moderated the first panel of the day, the power panel, and the speakers included Mike McDermott, Robert K. Simmons, and Raymond S. Wood. They discussed how power and energy forecasting could be made and the investment risks and opportunities that come along with it. Currently, there is an abundance of natural gas supply and enormous liquidity in this market. Destabilization, government regulation like the clean carbon plan, and changes in technology that cause low commodity prices are all risks to investment. For example, the U.S is more price sensitive and has a higher reliance on equipment. European countries were early adopters of renewables and had to pay higher prices. This all leads to the idea that “one size does not fit all” and that capital flows to what’s more economic at the time.
The next panel, the energy panel, was moderated by Akhil Kapoor and featured Oliver Mussat, Nick Cleary, and Chiara Salghini as speakers. This panel took the perspective of a commodity outlook, highlighting the differences between the oil and gas markets. The oil market has less long-term infrastructure, while the gas market has more long-term infrastructure. In a more global perspective, the forces of supply and demand are volatile, and recovery is supply driven. For example, in India, Bangladesh, and China, there has been a growth in the middle class. Similarly, in Africa, the overall population is increasing. These points were reinforced in the Emerging and Frontier Market Panel that followed. Catherine Helleux moderated this panel, and the speakers were Roger K. Horn, Audrey Kaplan, and Jonathan Prin, CFA. When evaluating emerging markets, the biggest risk is currency. The development banks present in the emerging markets tend to attract private capital. In addition, these markets experience moderate growth and lack liquidity.
The keynote luncheon was a great way to summarize the panels early in the day. Walter Winrow delivered the luncheon keynote address. He discussed the benefits of having infrastructure assets in that they are long-term, low risk, and generate returns in a low yield environment. Winrow also described the characteristics of developed markets as being low growth, having liquidity, and involving refinancing rather than building. From a global perspective, an increase in infrastructure investment can provide GDP growth and the creation of jobs.
The last few panels of the day included the transportation panel and the water panel. Micheal Likosky moderated the Transportation Panel: Roads, Rails, P3 and Sea and Air Ports. The speakers in this panel were: Josh Duitz, Alex Greenbaum, J. Micheal McCarthy, CFA, Mario Maselli, and Kurt Krummenacker. With more road projects and diverse methods of transportation, the government has been helpful in the public sector, but they are also limited in resources. Therefore, it maybe necessary to resort to the private sector for infrastructure investment in the area of transportation. The last panel before the closing remarks was the water panel, featuring Matthew J. Diserio, Eric Glass, CFA, Justin Ourso, CFA, Ketul Sakhpara, CFA, and Ryan Wobbrock. Water is a valuable commodity that is usually taken for granted. Its biggest risks are climate change and hydrology. As a commodity, it has higher costs and different uses. The speakers distinguished between the agricultural value of water that involves the value of the commodity and municipal value of water, which deals with the value of the distribution system. In more recent years, there has been a secular trend of regulation for water.
To conclude the events and well-rounded coverage of global infrastructure and investment trends, Utku Teksoz delivered a special closing keynote address. He highlighted the increasing rural-urban gap infrastructure, and his focus was more on the future, specifically sustainable development goals. In more rural areas, infrastructure allows opportunities for urbanization (irrigation, ports, roads). He also described the catalytic role of infrastructure in that it spurs growth in education health, water and sanitation, climate change, energy, and ecosystem conservation. Perry Offutt, closing keynote speaker, strived to take on a new perspective of infrastructure and discussed waste industries. The event was adjourned with closing remarks by Patrick Holert, CFA, CAIA. Teksoz summed up the theme of this event when he said, “Time is ripe for a wholesale global infrastructure push”.