How next gen infra is transforming diversification: Partners Group

Next generation infrastructure is emerging as an asset class that can provide excellent diversification in a portfolio, while catalysing support for further public-private incentives aligned with the government's climate targets, an expert said.

Speaking to Financial Standard, Partners Group managing director, private infrastructure Nick Kuys said next generation infrastructure is a "shift" from traditional single assets like ports, airports, regulated utilities, of which he grouped into 'infrastructure 1.0'.

He noted traditional assets generally generate value from the financing of investments due to the privatisation of many of them, but the new generation of assets are "slightly more of an expansion of that", including the catering of a platform rather than a single asset investment.

These assets also play a huge role across the energy transition and renewable energy spaces, involving wind utility, solar, and battery energy storage system (BESS), Kuys said.

He explained the platform structure not only provides exposure to assets that were not commonly accessible but also offer great diversification.

"And the platform can include multi-assets, multi-technology... overall a de-risking aspect but also depend on how a platform is put together," Kuys said.

"If you have a portfolio of assets, their risk is really diversified... We had portfolios where you had multiple windfarms, for instance, in New South Wales, and on any one day, two or three of those wind farms will be generating perfectly while you might have a wind lull.

"I think that risk diversification is recognised by your debt provider. So, if you can move your debt financing from an asset-based project finance facility to a portfolio facility across a number of assets, you can get better terms and conditions on your debt and then obviously your equity risk is also reduced."

Currently, Kuys is observing several locations that provide great exposure of next generation infrastructure, including North America, Europe and India in Asia Pacific.

"We are seeing opportunities across multiple jurisdictions, and we will always assess them on a global relative return basis... We think having investment professionals in the region is the best approach when allocating our clients' moneys," Kuys said.

"We have good representation in Europe being headquartered out of there. We've had very good success expanding into North America, and recently, APAC is growing as a jurisdiction... India is becoming a more prevalent geography as well. We've got boots on the ground there and that's led to active deployment."

In particular, Kuys said Australia provides an abundance of opportunity for infrastructure like data centres and renewable energy assets, where Partners Group allocate a substantial concentration towards Australia.

"I think Australia as a jurisdiction is well suited for further data centre deployments... A large component of our power supply in this country comes from renewables, and that will continue to grow if the targets are met by the Albanese government on their green ambitions," he said.

He noted it will be imperative to collaborate with the government to understand the regulation and framework around the development of this area to make informed decisions, while learning from its experience in the renewable sector across the globe.

Meanwhile, Kuys said the policy setting will also dictate the capital floating into the country for these investments.

"For us, it's important that government policy settings remain attractive to attract the large amounts of capital that is required to fund infrastructure projects," he said.

"Capital remains mobile around the globe, and it will often migrate to where it sees the best policy settings for future allocations."