RBC GAM's infrastructure team shares an update on two new investments recently added to this Fund: a fibre-to-the-home network and a portfolio of operating hydroelectric power plants and what they could mean for your portfolio.
Andrew Hay explores what makes these assets compelling in today's environment, from their ability to deliver essential services at scale, to how they're structured to help protect your investment against inflation, changing interest rates and the ongoing energy transition. He also covers the fund's approach to co-investing with leading institutional partners and what that means for long-term investor value.
Watch time: 3 minutes, 19 seconds
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Andrew Hay - Managing Director & Head of Global Infrastructure Investments
The fund closed on two investments recently - within a day of each other, actually. And that was a coincidence, because both investments were things that we had been working on for more than six months. First investment into the United States was into a fiber to the home business. What was special about it? What was unique about it is it delivers an essential service, the internet, to all homes in a community.
And by being able to deliver it to all homes in the community, you've got that natural economy of scale to deliver a high-quality service at a low price to make it good for the customer. The second business, northeast in the United States, a series of operating hydroelectric power plants providing essential service to a growing area of the economy where low cost, low carbon power generation is required.
We've been working on both of these transactions for a long period of time. It's exactly the kinds of transaction that this fund was designed to invest in.
Both of these investments were initiated by Brookfield and other institutional investors. What's important when these consortia come together is that you have an aligned view on the value creation exercise for the company in the long term, and that was the case here as well. More broadly, if we look across the entirety of our fund, that's the role of our fund to be a stable provider of capital with real governance rights as we work alongside those other partners that have a majority interest in these underlying companies. This is, in fact, exactly what the fund is designed to provide our investors with.
So with inflation a lot of what we buy with infrastructure is just naturally tied to inflation. An essential product or service that has escalators embedded in the revenue, whether contractual or otherwise, that automatically pass through the benefits of inflation through to the end investor. With interest rates, a lot of what we try to do is have a debt strategy that aligns the duration of the debt, the tenor of the debt, with the duration of the contracted revenues, whether contracted or otherwise - so that you have that offset and you want a stability over time as well. Typically, core infrastructure is highly fixed rate as it relates to the debt strategy.
Ours is an evergreen fund strategy. So we're under no obligation to buy in or sell over a period of time, also adding to some stability to the whole period. And finally, on energy transition, what we're always looking for is the technology that provides the best overall outcome, low cost, security: energy security and stability (hydro provides baseload) and it's a it's a low carbon, no carbon solution.
And so for all of those reasons, hydro has been one of the leading early technologies and remains an incredibly relevant technology during a period of time when we see more and more power demand for the grid.