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CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers providing real estate and infrastructure investment solutions to over 500 clients worldwide.

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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure, CBRE Clarion

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Extending the Value Chain

Preface / Disclosure

As noted in my last mid-week post, in 2019, nothing will change with regards to the timely weekly write-ups you all love.  Occasionally, however, I will sprinkle in a mid-week post that might include promotional language related to my day job at CBRE Clarion.  As a reminder, in addition to providing weekly free midstream blog, I manage a midstream investment strategy and I contribute to the global team that manages an infrastructure investment strategy on behalf of paying clients.

Infrastructure vs. Midstream

Diversifying beyond the U.S. and beyond midstream has benefits that are emphasized in times of extreme volatility in oil prices, U.S. stocks, interest rates, etc.  Those benefits were on display in the fourth quarter 2018 drawdown in the U.S. stock market, when the global listed infrastructure index had much less downside capture.

But the benefits go beyond just a single quarter.  Last week, we updated our distribution reality checks piece from late 2017 with fresh numbers (see chart below), compare some of the key tenets of both infrastructure and midstream as investments, and we also respond to frequent feedback we hear.  Read the piece by clicking here.

Going Global with Infrastructure

Loyal mlpguy readers are here because they care about midstream.  For many in North America, “infrastructure” has meant midstream and MLP exposure, maybe with some utilities sprinkled in.  But in recent years, the U.S. has re-joined the global energy markets as a dominant exporter.  Midstream companies have extended their value chains downstream and expanded their export capabilities to facilitate export growth.

Midstream has gone global, with record exports of crude oil, NGLs, refined products and LNG.  Midstream companies saw the export boom coming (maybe you’ve heard EPD management say: “U.S. supply needs to price to export”) and positioned their assets to benefit.  We saw it coming too.  I even wrote a paper about export growth and what it would mean for the midstream sector 5 years ago.

The scale of production growth has continued to surprise, which has led to export growth that has also exceeded expectations.  The chart below shows that crude oil exports have gone from virtually nil to record levels in a few short years (data from EIA as of 1/11/19).  Charts for exports of propane, LNG and ethane all look similar.

On the other end of the U.S. export buildout, however, there is a necessary development of global import infrastructure.  The rest of the world needs storage, regasification, pipelines and distribution to be able to import more hydrocarbons.  Energy import countries also need expansion of utilities, airports and roads to support demand growth from low cost energy supply.

Joining the global listed infrastructure team at CBRE Clarion has helped me “go global” too.  When I joined in 2013, a big part of the appeal was the opportunity to expand my horizons beyond MLPs to a world of companies that might benefit from oversupply of commodities and excessive U.S. midstream competition.

Midstream has proven to have more cyclicality of cash flows than advertised, leading to more volatility than advertised.  There are companies in the broader infrastructure universe we believe are capable of delivering what investors at one time may have expected midstream to provide: stable income that increases over time faster than the rate of inflation.  Infrastructure can deliver that because it has companies with long-duration contracts, durable competitive advantages that come from a regulatory construct, and visible growth tied to ongoing maintenance spending and/or growth in populations.

CBRE Clarion’s Capabilities

CBRE Clarion manages a midstream strategy and an MLP strategy on behalf of institutional investors that have both produced returns in excess of their respective benchmarks since inception.

We currently do not have a midstream or MLP solution for individual investors.  CBRE Clarion does manage a global infrastructure investment strategy available to individual investors via a mutual fund for which we serve as the sub-adviser.  That fund typically has exposure to the midstream sector, which makes up nearly 20% of the global listed infrastructure universe of stocks.

Disclosure

The CBRE Clarion Midstream Strategy has an inception date of January 31, 2018.  Performance is based on gross of fees returns.  Benchmark performance is the Alerian Midstream Energy Select Index.  The Index is an unmanaged float-adjusted capitalization-weighted index which consists of prominent companies engaged in midstream activities.

Dividend yields fluctuate and are not necessarily indicative of present or future investment performance.  Past performance is no guarantee of future results.