While water seemed inexhaustible almost everywhere in Europe, climate change and the increase in periods of drought have made a scarce commodity a critical resource. To tackle the crisis, major investments are needed, as well as a profound change in our consumption habits.
Infrastructure companies provide the physical framework essential to the smooth running of a community. Utilities, transport, energy, schools, hospitals, as well as communications, water and waste treatment, all provide the framework conditions that are essential to the smooth running of our modern society.
Naturally, societal transformations go hand in hand with the upgrading of the infrastructure that underpins their development.
QUAERO CAPITAL has made significant investments in the infrastructure sector, both in listed infrastructure and in the financing of projects in private markets. This asset class offers a number of advantages in terms of both the nature of the investments and the specific characteristics of the sector. In any case, including a portion of infrastructure in a diversified portfolio seems very appropriate in the current environment.
Infrastructure is an attractive asset class overall for a number of reasons: diversification in portfolios, contractual and regular cash flows, resilience over the economic cycle (low beta), vital importance to society (digital and energy transition) and the benefits of longevity.
Investors also often see the infrastructure asset class as a good way of hedging against inflation. One of the main characteristics of this sector is that the companies in question often benefit from price indexation formulas built into their contracts. But the definition of infrastructure continues to evolve and its scope to expand. It is therefore essential to take a nuanced view of each asset to check whether it really has the usual characteristics of the infrastructure sector.
Current announced infrastructure spending plans make it the “number one” sector for global capital investment over the next ten years. Although, the infrastructure sector is intrinsically environmentally challenging in terms of greenhouse gas emissions, environmental pollution, habitat destruction and species extinction, we also believe there is an immense opportunity to promote responsible investment in this sector.
After a few previous false starts, the Japanese market—forgotten by investors for more than 30 years—finally appears ready for a new beginning. Japan’s economy has undergone significant changes, even though the market is still not completely aware of them. A number of serious initiatives have also been implemented by the Tokyo Stock Exchange to encourage businesses to maximize shareholder value. In this webinar held on 13 July 2023, Rupert Kimber, fund manager of Quaero Capital Funds (Lux) – Taiko Japan, provides an outlook on the changing landscape in the Japanese market and the opportunities he is investing in.
In this webinar held on 6 July 2023, Nancy Hirshberg, agribusiness and environmental expert and member of the Accessible Clean Energy and Net Zero Emission funds’ expert panel, talks about the decarbonisation of the food industry. Martina Turner and Olivier Ken, managers of Quaero Capital Funds (Lux) – Accessible Clean Energy and Quaero Capital Funds (Lux) – Net Zero Emission explain how they rely on Nancy’s expertise to determine their investment decisions in this sector.
Japan has been the bete noire of many asset allocators’ portfolios for most of my 34 years managing money there, and investors continue to be underweighted from an asset allocation perspective. The throwaway line of ‘it is cheap, but the value cannot be realised’ is no longer true. Change is happening and as Mr Kikuchi the Mizuho Strategist noted, there were 5 activist proposals in 2015 and this had risen to 60 in 2022. The Tokyo Stock Exchange (TSE) clarified what was expected to be considered by Japanese companies, instead of insisting what should be published. Cost of capital, return on invested capital (ROIC), return on equity (ROE), and other appropriate measures came out during March. All these measures are designed to make investing in Japan more attractive.
For almost 35 years, Japan has been the victim of the collapse of one of the most gigantic double bubbles in history (real estate and equities), which explains the structural underperformance of the Japanese market for 3 decades (see chart below). The Japanese market now accounts for just over 6% of world stock market capitalisation, compared with over 50% at the peak of the great bubble at the end of 1989.
The situation in Japan illustrates the extent to which a country’s path towards net zero is subject to constraints.