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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

Infrastructure Wall of Capital Extends Beyond Midstream

This week, the entire midstream sector is out in Las Vegas at the annual Midstream Energy Infrastructure Conference.  I’m here too, attending for my 15th straight year.  Each year it’s a chance to reconnect with old friends, ex-colleagues, new friends, etc.  While attending the conference and milling about in the insular midstream world, it’s easy to get caught up in sector-specific drama.  This week, the focus was on private equity interest in Midstream assets and who might be bought out next.

But the huge capital raised by infrastructure funds in recent years isn’t just targeting a value disconnect in the midstream space.  In fact, BPL wasn’t the only company last week that was bought out at a premium by an infrastructure investor.  Last week, private infrastructure funds (Digital Colony and EQT) announced buy out of Zayo Group, a fiber network owner, in an all-cash deal at a 14% premium to prior day’s price and nearly 30% from the price before buyout rumors began a few months ago. 

We’ve seen the abundance of infrastructure capital raised in recent years and we’ve also seen large pension funds ramp up their allocations to the sector.  The challenge for those massive pools of private infrastructure capital is to find assets to acquire.  There are only so many infrastructure assets held privately.  The natural trends that we’ve seen is those private players are increasingly looking to the public markets to find infrastructure assets.  Infrastructure money has invested in midstream assets, but also utilities, toll road companies.  The valuation gap remains in place across infrastructure and we can participate as that value gap narrows through these transactions.

CBRE Clarion manages a global listed infrastructure strategy that owns publicly-traded infrastructure stocks.  In this weekend’s post, I published a chart highlighting EPD’s performance vs. the AMZ.  Below I re-populated that same chart with the primary infrastructure index.

So, while the midstream sector continues to shrink, there is a much larger pool of listed infrastructure stocks globally that is more than $3.5 trillion in size compared with less than $700bn for midstream. That diverse universe has secular themes driving long-term growth.  Those themes include (among others):

  • Demand for NGLs and LNG that benefits midstream stocks in the universe
  • Growth in renewables that benefits utilities investing in those assets
  • Growth in population and data use that benefits communication infrastructure stocks
  • Economic growth in globally that benefits toll road and airport stocks

As shown in the chart above, the diversity and critical nature of the assets has led to long-term performance that is much better than midstream on a standalone basis with less risk (as measured by standard deviation).  Please reach out to us if you’d like to learn more about listed infrastructure and CBRE Clarion’s capabilities.