Speaker 0:
Hello and welcome to this infrastructure Master class. I'm joined today by Malaga, unlisted investments manager at the government's Employees Pension Fund, as well as Alex ARU, manager of the Global listed Infrastructure Fund at M and G Investments.

Speaker 0:
So marilla, I'm gonna kick off with you. What typically characterises infrastructure as an asset class and its appropriateness for longer term institutional investors as well as the shorter term retail investors.

Speaker 1:
Thank you for the question, Chloe. So infrastructure in itself is seen as a very or at least comparatively lower risk asset loss for focusing on longer term investment horizon as opposed to other alternative asset losses. This being private equity, perhaps hedge funds, which trade more frequently.

Speaker 1:
But the key aspect and you know key feature that makes it attractive is the fact that it becomes or it's seen as a long term yield player rather than a short term commitment. You know, capital appreciation, which also does factor in into that over the long term. Now,

Speaker 1:
in terms of the appropriateness for both longer term institutional investors and short term retail investors, is that this you with infrastructure specifically, you do have contracted cash flows which provide that yield over the time. And if you were to compare it to, you know, the listed counterpart and the fact that infrastructure is predominantly linked to inflation, we would compare this to IB and, you know, and pension funds

Speaker 1:
and insurance companies. They also rely on I BS to protect, you know, their books from from the increases in inflation. Therefore, uh, infrastructure assets play that part too, and, you know, they do provide regulated liquidity as well in the form of those contract cash flows. And you know you, once you get to the end of the actual infrastructure project or at least the investment you do, then get your capital back.

Speaker 0:
Thank you very much. Marilla. Alex, would you agree with me? And then again, what are the various means into which you can allocate to infrastructure? I. I broadly, very much agree. Um, it's an asset class that has for decades been attractive to longer term minded investors, and I would suggest that longer term minded retail investors could certainly benefit from, uh, a listed infrastructure strategy that provides daily liquidity. Should they require it,

Speaker 0:
Um, it's an asset class. Um, that, as Marla says, provides long term cash flows. Um, the way we invest in infrastructure is to only target growing, uh, cash flow streams. So, in other words, investing in companies that grow their dividends over time and what that allows us to do is to drive towards our objective, to grow the income to our own unit holders every year.

Speaker 0:
And in today's inflationary environment, that's ever more critical because, as I'm sure, we'll all agree, Uh, the cost of our daily lives is going up and up and up and to have growing cash flows, uh, to meet that is a very important feature. Uh, the stability the, uh, lower volatility of listed infrastructure businesses compared to the global equity market is also an attractive characteristic in my mind.

Speaker 0:
Uh, because that volatility could, of course, cause some distress, Uh, from time to time, Uh, and the final point I'd make on, uh the strategy that we manage is that it is very much global. Uh, most, uh, unlisted infrastructure strategies tend to be regional in nature. They can be continental. They could be country, for example. Uh, but our strategy is very much global. We invest all around the world, capturing the opportunities where they may arise.

Speaker 0:
OK, thank you very much, Alex. We're gonna go into a deeper understanding of the investment process that you follow shortly. But marilla, perhaps you can take us through through the various types of infrastructure investments. And how are they typically classified? What would typically then be the return drivers as well?

Speaker 1:
Ok, so in terms of just the broader classifications of infrastructure, you know, the term in itself appears very monolithic. But you can actually break it down into two sort of pillars or sectors one, the first one being economic infrastructure and the second one being social infrastructure now under the bucket for economic infrastructure. This is where you have energy, telecommunications, natural resources, transportation

Speaker 1:
and renewable energy as well. So these are the infrastructure assets that are vital to the economic sustainability and growth of its own economy or country. There are and of course, you know, on the other on the other pillar being social infrastructure, you'd have focuses on education, health care, you know, social housing where applicable. And perhaps we can get into that in more detail later on.

Speaker 1:
But now, in terms of the return drivers, respectively, or at least at least for both. Um, those pillars, you know, you find that you find you, you receive an actual fixed amount, uh, for these particular assets with an off taker sort of providing the revenues for that particular asset. So be it. A renewable energy project, Uh, be it a wind farm. The generated capacity for that which is then sold off into the grid towards the government,

Speaker 1:
is paid accordingly as such on a contracted basis. So that's where we'd sort of figure out the return drivers. But of course, when it comes down to the more nitty gritty technical parts of it, you need to consider is it debt orientated as it equity orientated and where you where you have equity funding for that particular project? You know, you need to consider what the equity funders require from that. Of course, it comes down to the country specific risk. You know, the uniqueness of the project.

Speaker 1:
Um, and usually when they do conduct valuations on this, they benchmark them against long term bonds. Uh, in South Africa's case, you know the 10 year government bonds. If it's a longer project, it's 15 years, so that all then comes in to provide those sort of underlying requirements for a term. But they also inform the drivers thereof. Um, and of course, I think the last point here is what is critical is always the timely completion of the project.

Speaker 1:
Um, such that if it is delayed, you know there are higher requirements, higher requirements in the return. But of course, you know, it then has a knock on effect in the returns that are received, but that overall speaks to the return drivers, too. And of course, if the off taker being the government is not able to pay that also then you know brings down the overall return at the end of the day. But there are contractual clauses that do protect the project, sponsors the project financiers as well,

Speaker 1:
and that to that extent they would have recourse against the off taker should they not be able to recoup some of their cash flows or money.

Speaker 0:
Absolutely. Thank you very much. Marilla. So, Alex, that seems to me as though, um, an investment in real infrastructure you specifically allocate buy a listed means listed equity means How is your fund allocated geographically and also What are the characteristics of the different type of infrastructure allocations that you, um, that you have in your fund?

Speaker 0:
Sure. Well, like like marilla. We have, uh, allocations to various types of infrastructure. Uh, we also have an economic infrastructure exposure, which consists of utility businesses,

Speaker 0:
energy, infrastructure, businesses, transportation, infrastructure, businesses. We have a dedicated exposure to social infrastructure, which extends beyond just local, uh, requirements like hospitals and schools and libraries towards, uh, more broad categories, such as life sciences, infrastructure, which are laboratories and drug testing facilities.

Speaker 0:
Uh, and then we have what we call evolving infrastructure, which very much brings into play the digital infrastructure, opportunity, communications, infrastructure. We have, uh, transactional infrastructure payments networks. Uh, and we have what we call royalties, which are long term cash flow streams oriented to land holdings, which give investors some commodity price, type of, of, of production.

Speaker 0:
Um, and we allocate globally. As I mentioned, uh, I'd say that roughly half of the exposure is typically oriented towards North America. Big economies, lots of infrastructure, opportunity, particularly in the US, as you can imagine. But in Canada as well, I'm Canadian by birth. Uh, and, uh, energy infrastructure is very prominent. Uh, in that country, uh, the balance would be mostly the UK and Europe. Uh, and then in the Eastern Hemisphere, we would have some, uh, developed Asia and,

Speaker 0:
uh, emerging market Asia as well as Australia, Of course. Uh, so it's very broadly represented, mostly developed market oriented, because that tends to be where we find the best assets the best, uh, regulatory environments, uh, the most progressive managements. And, of course, uh, a philosophy towards growing dividends. That's an absolutely critical element of our strategy. OK,

Speaker 0:
so on the GEPF side, allocated quite predominantly to South Africa and the development mandate that the GEPF follows Regulation 28 which governs the pension funds in South Africa, has recently allowed up to 45% allocation within pension funds to infrastructure. Um, is it classified, then marilla as an asset class, or is it generally more as a theme since it can be allocated through, um, via different asset

Speaker 1:
classes?

Speaker 1:
Uh, no. Thank you for the question, Chloe. So it's it's it's a mix of both, Really? You know, the asset loss has been in existence for quite some time in the South African investment landscape. Is that, of course, with Regulation 28 evolving in the way that it has, there's been a bigger focus. Now we move on to the second part of the theme of actually addressing South Africa's,

Speaker 1:
uh, infrastructure funding need, which, as of 2021 and I know it's a bit of a data statistic or a number. The finance gap, uh, for infrastructure in South Africa was sitting at about 2.15 trillion. So you can imagine that the government would need to find ways to plug that gap for infrastructure that is quite pivotal and critical to the economy's, you know, growth and sustainable growth thereof. And I mean, even if you look at the

Speaker 1:
definition of Regulation 28 you know it operates for the primary objective of developing, constructing or maintaining physical assets and technology structures and systems for the provision of utility services or facilities for the eco for the economy, businesses or the public. So then you know that's where we then look at it as this is the with it going up to 45%. This is addressing a particular theme

Speaker 1:
where in you know it it also reflects a global trend where infrastructure has become a bigger asset loss over time. Um, and I think you know that is the critical thing thereof. Um, and I think the last point to to mention here is that

Speaker 1:
with that fund, that infrastructure financing gap that I mentioned, you know, this this really does outstrip the government's ability to fund the needed the needed development of infrastructure here, therefore, making private sector through, you know, your pension funds or insurance funds as well. Uh, critical in the participation in the building and funding of these essential infrastructure projects. I think that's that in that in summary sort of looks and answers your question.

Speaker 1:
Thank you very much.

Speaker 0:
Marilla. So, Alex, does your fund allocate then to developmental assets within so the southern Southern African region

Speaker 0:
there isn't much availability. Unfortunately, Chloe, um, we we obviously understand the importance and the need and the critical nature of South African infrastructure as well as the huge investment opportunity. But generally speaking, there aren't companies that are in that are listed, uh, on on exchanges that allow us to access That, uh, the closest we come is in our digital infrastructure exposure where we have mobile telecommunications towers,

Speaker 0:
Uh, in parts of Africa, particularly West Africa. Uh, but in the the subcontinent Not, uh, not as much. Uh, and I think that's an important, uh, opportunity potentially for South African investors, which is to, uh, access listed markets outside of their home region to capitalise on global listed infrastructure opportunities in other countries. Because I would argue that, uh, probably nobody knows better the importance of, uh, infrastructure investing,

Speaker 0:
uh, and the critical nature of that infrastructure than South Africans. Given what you're you're having to deal with with with regards, particularly to, uh, electricity availability.

Speaker 0:
OK, thank you very much. Um, so I wanna understand. Then we mentioned that infrastructure can be allocated to through different means and different asset classes. What are the optimal asset classes for driving impact, um, through an allocation to infrastructure.

Speaker 1:
So with the optimal asset losses through which infrastructure exported can be achieved, you need to look at it through different lenses here, right? Is it through the unlisted lens or the listed lens right in the unlisted space?

Speaker 1:
You could actually sort of then bring it down between debt and equity. Of course, right where it's you as an equity fund or at least through a fund manager thereof. Uh, through a fund fund, a fund programme, you allocate capital, then the manager on your behalf invest in particular infrastructure, uh, with how they do it. Like I said in the beginning, there would be debt or equity. Usually, debt is a bit more stable in that you don't rely specifically on. You know, the valuation movements on of the underlying project wherein rather

Speaker 1:
because of the nature of the infrastructure project and the nature of the debt provided, you know, there there then becomes a contractual overlay and that you do receive your capital back, at least at the end when it self liquidates. But, of course, through the contractor, cash flows in that regard. On the equity side, yes, you're taking on a bit more risk, right? But

Speaker 1:
you may be able to achieve a bit more growth out of that particular asset, too. Of course, if you go back to the fundamentals that is usually used to leverage equity returns, you could also get a mix of both in that regard. And this really comes down to the strategy that the capital allocate to asset owner is looking to achieve. Are they looking to to receive a yield to play or benefit from a yield play? Of course. Then you'd go holy debt.

Speaker 1:
But if you want to increase a bit of your risk and, you know, get a bit of capital appreciation, you'd probably go for debt and equity on the list of side. You know, it varies, of course, uh, especially in the South African context. We would focus, really just on equities investing in new construction companies, which have themselves languished over the past.

Speaker 1:
Geez decade, I think, for their unique reasons. Locally, too, be it the construction mafias, be it the decline of the industry itself or the controversies that have surrounded that particular industry all the time. So what it then comes down to is what you're looking to achieve. If you're looking to achieve impact, it's usually through the unlisted lens that you would go through that if you're looking to achieve a return

Speaker 1:
with, you know, a bit more protection away from, let's say the list aspect. I mean, there's there's a whole discussion and debate around the safety thereof, do say, like list unlisted are not safe. There are actually quite stable. But if you just look to get the equity returned from the construction play, you can go straight into the list. It's space through equities

Speaker 1:
and sometimes, uh, through your property counters, too, where they own significant logistics companies. So logistics as well plays a big part or is viewed significantly as

Speaker 1:
part of the infrastructure grouping.

Speaker 0:
OK, thank you very much. So, Alex, you have the portfolio on the MNG, um listed infrastructure fund. What is the investment process then that you typically follow in screening potential? Um, investment opportunities.

Speaker 0:
Right? Well, we always start with the assets. Uh, how sustainable are they? Uh, how well positioned are they? What is their strategic advantage? Their barriers to entry, which is often a physical barrier to entry. Uh, and this is what ultimately determines the asset's ability to generate consistent returns and growing cash flow streams over time.

Speaker 0:
Then we need to make sure we have a good regulatory environment where applicable and not all assets are regulated. But many are when it comes to infrastructure investing.

Speaker 0:
And we need to make sure that those businesses are well managed. Uh, that there's good governance. There's good social consideration and obviously good, uh, environmental stewardship, Uh, and that the management teams and the boards and the governance support growing dividends, uh, over time. And then we think a lot about capital allocation because Marilla said, it's not just about the existing asset. It's about where capital is ultimately invested to grow assets or to build new ones or to acquire them.

Speaker 0:
Uh, and this is a critical element of of our analysis and, um, an assessment of, uh, of companies operating practises. Uh, and then ultimately, we can, uh, because we have the luxury of, uh, liquidity in the underlying markets,

Speaker 0:
we can move our capital to where we feel most welcome. If regulatory environments shift and become less favourable, we can go where we feel more welcome where the regulatory environment is more benevolent. Uh, if we have issues with particular assets or governance which we've had in the past, we can actually,

Speaker 0:
uh, move out of those exposures, uh, readily. And we don't abuse that privilege. Uh, our number one, objective is to engage with companies and, uh, be active, uh, managers of of our clients, um, investments uh, but ultimately there are. There are times where we ultimately have to move on.

Speaker 0:
Uh, and a final point I'll make is that we follow, uh, a framework built around the UN sustainable development goals when it comes to assessing companies' impact. Uh, and we do measure, uh, each of our company alignment or contribution to the sustainable development goals. Uh, and more than 80% of the portfolio is very well aligned to that regard. OK, thank you very much.

Speaker 0:
So, Marla, um, you've mentioned that the large asset owners are increasingly then being fo, uh, focused on or turned to to allocate directly to, um, some of these large scale infrastructure projects who are the ultimate stakeholders that are all involved, um, in these large scale utility and developmental infrastructure projects. And what role do they each fulfil?

Speaker 1:
So this in itself would then need to speak to Let's look at the wind farms per se. Right. So this looks to address one. You know, the lack of generation capacity in the country. Therefore, projects like that are often, you know, sought after by the sponsor, which in this case would be the South African government or at least the Energy Department and that it requires more energy and therefore allows for the commission and, you know, development, construction and development of these particular infrastructure projects,

Speaker 1:
such that they can then, you know, receive or benefit from that particular increase generation. So that's the one aspect. The other aspect is who the funders are in that regard, you know? Is it is it going to be equity funders or debt funders? Or the debt funders typically can be your banks, where they provide significant amounts of debt, Uh, through their project finance teams in house to fund this project in terms of it getting to a complete state and therefore an operational state thereafter,

Speaker 1:
whereas with the equity funders, it's similar. So it's just that

Speaker 1:
they would, you know, also be participating in the actual management and oversight of the project as it's developed and constructed and, you know, uh, put online for operations. So those are the two aspects, and then, uh, the other leg of that is then your off taker. Sometimes it may, it may coincide with the actual sponsor. Other times it may differ. So again, the off taker in the in the example of a wind farm project would be the South African government here through Eskom,

Speaker 1:
where we would pay a certain tariff for the energy that it receives to go back into the grid and thereof, you know, just to ensure that it pays the, um the actual operators of that infrastructure project. Um and of course, getting into more detail, you'd get certain stakeholders such as your, um, engineers, uh, where where they would actually come in and develop the project on behalf of the sponsor and the financiers to make sure that it

Speaker 1:
operate seamlessly. It's, uh, developed on on time, in line with with a certain timeline, uh, such that, you know, there aren't any financial losses. Uh, the the operation is well, the project is operating optimally and, you know, ensuring that it delivers what it was set out to do. So those would be the direct stakeholders, your indirect stakeholders, then would be, you know, the end consumer of that particular energy being your,

Speaker 1:
um, population around the country. Just they would benefit from the additional

Speaker 1:
capacity businesses. Similarly so And as we've seen over the past couple of, uh, months, uh, with the quite quite, uh, heavy load shedding schedules where you've seen businesses struggle in terms of keeping the lights on. And there are therefore ma maintaining their businesses. Therefore, they've lost a significant amount of revenue profits, the works, and they had to incur their own costs to ensure they keep the lights on. So

Speaker 1:
if these projects go unsuccessfully and are done at scale, you know, you create an ultimate benefit to the end user. And of course, this would then also improve the economic prospects of the country overall and that you increase economic productivity from both, um, you know, your human capital and actual businesses that provide those services. And, you know, um, goods, too.

Speaker 0:
Thank you marilla. So touching on the themes that infrastructure can typically play into Alex, what are the themes that you're analysing at the moment? And perhaps we can take a longer term view. What are the emerging themes that you might see? Um, coming into infrastructure investing?

Speaker 0:
I have to say when, when it comes to infrastructure investing, you have to take a long term view because that's where the biggest opportunities ultimately arise. Um, energy security,

Speaker 0:
The energy transition infrastructure is at the heart, uh, of those two very important themes, Uh, the electrification of society in order to, um, ensure that energy transition and and address climate change, Uh, when it comes to electrification of, say, transportation, uh, charging networks, uh, smart toll roads and other, uh, opportunities.

Speaker 0:
Um, we invest in, uh, the circular economy theme. So in other words, making, uh, our activities in society more sustainable through recycling through better waste management, capturing gas from landfill, for example. Um, digital connectivity. Very important long term theme. What would life be like? Uh, these days without the opportunity to,

Speaker 0:
um to connect digitally as we're doing. Uh, right now, what would the pandemic have been like if we didn't have the opportunity to work remotely or um or or be in touch with loved ones or entertain ourselves through digital means? That's all requiring, uh, infrastructure. Um, and then we have, um, a a broader sort of, uh, emerging market and urbanisation, uh, opportunity set in global infrastructure and and the needs around that public transit and water infrastructure.

Speaker 0:
Um, then we have, uh, of course, demographically driven infrastructure opportunities, as as has been mentioned when it comes to say hospitals, long term care, Uh, life sciences, infrastructure requirements. So, uh, a demographic theme, Uh, with an increasingly ageing society in the western world and developed world primarily requiring different types of infrastructure over time.

Speaker 0:
So we are talking about a multi decade opportunity set that tends to be because of life, of a life of assets and their critical nature. The the kind of thematic opportunity that we're talking about. OK, thank you very much. So, how many of those themes do you integrate in your investment? Um, approach. And perhaps because of South Africa's unique, um, economic situation should I say

Speaker 0:
we are fans flowing?

Speaker 1:
Um, So in terms of the actual themes covered there by Alex and we you know, we also look at the SDGS or sustainable development goals that, you know you get from the IFC, or at least the UN. Sorry, um, and predominantly we focus on, you know, job creation being, and I'll map these according to the SDGS here, job creation being SDG one affordable and clean energy being the SD G7

Speaker 1:
clean water and sanitation SDG six. And then you know, sustainable development which is building resilient infrastructure promoting sustainable industrial industrialization and fostering that innovation, you know, marked at least mapped to SDG nine. That is what we predominantly focus on and going back to. When you had asked me what are the different types of infrastructure? We also look at it from a view of investing in in actual economic infrastructure

Speaker 1:
and social infrastructure, knowing full well what those, uh, projects or at least infrastructure, uh, assets would address in case in the case of South Africa.

Speaker 1:
Now, with the question around where the funds flow or where where they've been flowing in terms of, you know, given our current economic challenges,

Speaker 1:
it's It's been quite interesting, I think, globally, if we look at what's been happening over the past 12 months, even post covid you know, with the fact that countries, or at least countries through the reserve banks have been tightening their monetary policies fiscally. Governments also trying to tighten their belts, you know, there there then becomes an issue of where the capital needs to go. Um, you, you know, with if again, if you were to look at

Speaker 1:
in particular infrastructure projects that use debt, you are effectively making the debt a lot more expensive than for investors. If you would see that, you know you're not going to get a decent or good return in this particular project. If you were to fund it through equity, you may not be, you know, keen on that and that the valuation has also come down, as as the interest rates go up. So you'd find now, in this particular environment, the funds and just reading, you know, just general market commentary. The views. There's been

Speaker 1:
a view to just align with cash at the moment, given the uncertainty, the high sort of volatility in the market at the moment and where investors then you know, direct that cash or money. But of course, with regulations such as Regulation 28 or at least, um,

Speaker 1:
policy change like regul Regulation 28 that counteracts the effects of such, uh, market win or headwinds in that in that respect. So the the the flow of money here is a bit of a tricky question in that you're not always able to track it. But

Speaker 1:
with the efforts and strides that have been made to make infrastructure a lot more attractive, you see a lot more investors now moving into that space, and I speak anecdotally here, but post regulation 28 you would have seen a lot of

Speaker 1:
clients for the pension fund administrators, uh, be they for sun or neutral, perhaps taking a keen interest in infrastructure and knowing full well what it's meant to achieve there. So the and this is something that I actually need to research, I think a bit further to see what the funds flow. But that is my understanding

Speaker 1:
of the flow of funds. OK,

Speaker 0:
thank you very much, Marla. So, Alex, um, M and G have recently launched their feed a fund. Um, for the globally listed infrastructure fund, perhaps you can speak to the accessibility. And what's the interest been like?

Speaker 0:
Uh, the interest has been great. As I mentioned earlier. If anybody understands the importance and critical nature of infrastructure is, um, South Africans, Uh, when I visited uh, Cape Town, uh, a few months ago, uh, and and travelled to the rest of the country, um, it was quite eye opening, um, having to deal with load shedding and and infrastructure challenges. Uh, and so understanding that and having the opportunity to access uh, Global listed infrastructure businesses,

Speaker 0:
uh, around the world. Uh, their characteristics through a feeder fund has has has, um, generated a lot of interest. Uh, our investors in the strategy outside of South Africa are almost exclusively retail investors. Uh, and it provides, uh, everyday investors with an opportunity to access an asset class that is otherwise not as accessible. Mostly,

Speaker 0:
um, because it's institutions that that that invest in unlisted real estate and and infrastructure. Um, so I'd say that, um, the the, uh, the opportunity is is, um, Is is upon us, uh, in terms of, um, investing in these long term thematics

Speaker 0:
And the accessibility is there. Um, I would also argue that, um in many cases listed infrastructure businesses trade at quite attractive valuations. Particularly now when there is, uh, sentiment, uh, that that that is driven primarily by interest rate, um, increases and and monetary policy, as Mara mentioned earlier. Uh, but that gives rise to fantastic long term opportunities in our mind. Ok,

Speaker 0:
Marla, Then you've mentioned that you, um, are guided by the SDGS. Or sometimes, you know your investments. Do, um, check the the boxes for some, um, addressing some of the SDGS, but then on the side of ESG. What are the ESG considerations that you take into account in your investing process when it comes to infrastructure investing?

Speaker 1:
So I mean, yeah. And just to break up the acronyms thereof, the the SG, you know, uh, with the developmental mandate that we have at the GP F. You know, when we do invest in particular infrastructure, especially given that the GP F invests into fund managers, uh, such as your or pay the funds thereof.

Speaker 1:
You know, they have the expertise and, you know, capability to invest outside of Africa. You know, given that the GP F has a very small team in the moment at the moment running the the internally managed fund, but also the PSE book, too. Now again, coming back to your question around the ESG. So with the environmental aspect, we then you know, look for managers. Look for assets infrastructure assets that focus on, you know, environmental, environmental sustainability.

Speaker 1:
So of course, we wouldn't naturally allow ourselves to investing, especially in the private market space, investing into anything coal related anything that would prove detrimental to the environment, the surround, the the overall environment and the surrounding communities, too. Um, and of course, this can also bleed into the being the social aspect of it, and that when you do create and when you do invest in these sort of assets through those fund managers,

Speaker 1:
there is always an aspect of job creation, you know, making sure that the communities around there are benefit. They benefit from the existence of these projects through increased job creation. You know, um, again, you know, the let's say resources in the community are well, looked after, um, And I think the classical example here is a mine. And if you were to ask any accounting student

Speaker 1:
that ask you, you know what happens after a mine is decommissioned, you know, has the community benefited? What do they need to hold back in terms of provisions? The works. So we look at investments, uh, through those managers that are able to address those without any detrimental effects, both to the to the environment and society at large. And, of course, on the governance side,

Speaker 1:
we need to ensure that all the controls, all the governance, uh, measures are taken

Speaker 1:
taken seriously and accounted for by the managers and such that you know when they do invest? Um, let's say again, another hypothetical example here. But they invest in a project foreign, foreign, African state, Um, and that there are certain things you need to consider on governance. Other relationships with the government. You know, how are you able to maintain that? Um are you able to make sure that there aren't any reputational

Speaker 1:
challenges that one might face around investing in a particular area on a particular piece of land or having any challenges with the community and how those you know conflicts are handled? But of course, there's more governance to within the manager. Are they able to track their ESG impact? Are they able to draw plans for that? You know, and can they adhere to that without straying too far away from that? But of course, this then comes again, comes down to the projects and how they are managed. So

Speaker 1:
to make sure that there aren't any conflicts of interest with these sponsors, the debt financiers with equity financiers, um, you know a number of things. So

Speaker 1:
if you were to dig deeper into those three letters, you know, we would naturally look out for what they're trying to address, um, at the end of the day, and I think it's it makes it, uh, a natural.

Speaker 1:
It makes it a natural alignment to how we then look to address developmental investments.

Speaker 0:
Thank you very much, Marla.

Speaker 0:
So, Alex, Shirley, you, uh, integrate ESG along your full investment process? Do you apply negative screening? Um, at any point, or do you steward, um, the listed equity, um, firms that you hold?

Speaker 0:
Um well, we we do have absolute screens that have to be, uh, applied at a high level. That's the very easy bit. And that's about 1% of our ESG consideration, because that's done,

Speaker 0:
uh, automatically. We have very strict limits on coal fired power, for example, on, um, on any, uh, UN GC or United Nations Government Council, uh, violators, for example. And and and so So there are those very strict screens, but 99% of what we do is assessing company by company, the ESG considerations that are most relevant to the asset class. Um, what kind of impact

Speaker 0:
are these assets? Uh, making on the environment, the the the local community. Uh, how exposed are they to potential exogenous factors like climate change. Um, what is the societal, uh, benefit of of these assets? How is the governance of these assets? And when investing in infrastructure, one has to be very mindful of quite particular considerations that are relevant to the asset class. These are

Speaker 0:
fixed assets. Uh, they have impact. In many cases, they're not movable. Uh, they're also exposed to climate change related events, whether it's flooding or fires or drought or landslip. Um, and so you have to be quite mindful of stranded asset risk. In that regard, you need to make sure that the assets are well managed, uh, that they don't cause danger to, uh, to to to, uh, local communities, for example, or, more broadly, to the environment.

Speaker 0:
Uh, and so that's that's We spend a lot of time, uh, looking at that and then, uh, on the same side of things. We also assess the contribution to sustainable development goals, the provision of clean water and sustainable energy, and and various other factors that support the SDG as has been mentioned. And we track that very carefully, So it's a balance between assessing risks, but also, um, measuring the benefit as well OK,

Speaker 0:
so marilla, um, the Asset Owners Forum is also now one year old. One year old, um, was just reached its one year anniversary. What is the outlook for the forum with regards to coveting with other large asset owners in South Africa to address the, um, infrastructure shortfall locally?

Speaker 1:
So on the topic of reinvestment, I think it's very important to really understand what coves is, especially in the funds base or with fund managers that invest into infrastructure projects, and that you, as the limited partner or the investor in, you know, fund terms have the capacity to also invest alongside the manager whatever project they then look at there now.

Speaker 1:
The important thing, I think, from a fund to fund perspective, is that you know, you've, uh let's say you've allocated $15 million to a fund manager and they've given you a couple of opportunities. So, of course, our our ultimate beneficiaries of members. The aspect around investing through covets is that usually this is free of any fees as opposed to the initial investment, and that you can actually benefit from investing directly into the asset and getting those returns without a fee sort of dilution.

Speaker 1:
Second thing is that you, as the investor would then need to look at what you want to be exposed to, you know, Is it more so renewable energy? Is it, uh, water sanitation projects? And if you feel that you are underweight, that and how you've built and constructed your portfolio for the long term, you can then use as as a mechanism to then top up what you're already exposed to. So that's how you would look at it and

Speaker 1:
the most important thing with institutional investors such as the GP GP F and that where you look to make investments at scale that provide that impact at scale. You can also use that coves piece to, you know, increase that impact for from that particular project. And I think the the main thing here and I forgot to mention this is that usually if fund managers sees an opportunity and they feel like

Speaker 1:
you know it requires more capital, they then reach out to the actual LP S of investors to offer them the opportunity to invest alongside them. So this is a win-win for both parties nonetheless, so this allows again investment at scale but impact at scale too. And with regards to the asset Owners Forum, this is a brilliant opportunity for them to also participate in

Speaker 1:
the improvement of the infrastructure landscape for South Africa, you know? And they they wouldn't be seen as idle parties just allocating money monies into your fund managers or funds.

Speaker 0:
Absolutely. Thank you, Marilla. So to close off the session now, Alex and Marilla, um, where are you looking at? Opportunities right now. And what is the outlook for infrastructure both locally and globally?

Speaker 0:
We we have a huge investable universe. Uh, as mentioned, it is very much global. And so we are out there prospecting, um, looking for opportunities. Um, remember that in the listed market, we we can take advantage of day to day valuation opportunities. Uh, when you have difficult market environments, for example, opportunities come up where? If you have a long term view, you can really capitalise upon that. At the moment, we're seeing significant opportunity in the utility sector,

Speaker 0:
uh, in digital infrastructure, given the valuations and given the long term prospects, um, social infrastructure is another fantastic area for us. Uh, where valuations are extremely attractive. Uh, partly because of sentiment, uh, around interest rate volatility, for example, Uh, we always take advantage of these short term opportunities when it comes to valuation.

Speaker 0:
Um, the other opportunity for us is in the energy transition, which extends beyond just utilities. Uh, we have, uh, transmission infrastructure opportunities. We even have natural gas infrastructure opportunities, gas being a very important transition fuel to offset,

Speaker 0:
uh, the use of coal in generating generating electricity. I think that could be AAA fantastic solution, ultimately for South Africa. But that's probably a conversation for another time. But certainly China is decarbonising significantly away from coal by using natural gas. Uh, not just on, uh, generation of power, but industrial use of coal, Uh, and even, uh, coal fired heat, uh, in residences. So, um, there's a huge societal and environmental benefit

Speaker 0:
to all of this, and and and those are some of the opportunities that we're seeing at the moment. Regionally, valuations are very attractive. Uh, currently in Europe, Uh, and in certain parts of asia, um, So again, we have the opportunity to move and and be nimble in terms of addressing opportunities when they arise. OK, thank you very much. And marilla um, with your pan-african focus. Where are you finding opportunities and where are you? Where are you allocating funds geographically

Speaker 1:
So geographically? I think it's important then to also look at where the GP F has been in terms of investing in infrastructure. So there is exposure to pan African assets, some in South Africa, some in West Africa, some in Central Africa, too. And, you know, given the history of how the GF is invested regarding its own evolving investment strategy and how it views private markets,

Speaker 1:
we then look, I think we are also looking to cover or fill in the gaps from in other regions or where East Africa seems well, at least, has been a region wherein there's been little coverage there are. So we're looking at opportunities there through fund managers that are able to provide coverage to that area, too. And, of course, anything in North Africa as well. The opportunities themselves still come in the usual forms, and that there's power generation required, um, where it's more where it's a bit complicated dealing with the government.

Speaker 1:
You sort of, uh, look at fund managers that have access to these businesses on a smaller scale that are able to provide renewable energy solutions to consumers on the ground. Um, and there are a few examples that one can cite. If you look at managers, fund managers, very prominent fund managers that have invested in such businesses, logistics still plays a very, very big part here

Speaker 1:
and that you know how Then, do you get goods in land for, you know, uh, productive, productive, productive means? So in South Africa's case, we understand that you know, we have a challenge or significant challenges with our transport and logistics infrastructure there of addressing that would allow for, you know, coal to be taken from the mines to the actual ports

Speaker 1:
and have them, you know, shipped off to Europe, where some need may be needed, where where it may be needed There, um so transport logistics, but that this is also the theme for the rest of Africa, and that is quite critical to ensure that goods in these economies or countries are transported in a more economical way. Where previously you have roads that are in a state of disrepair, you know that they have neglected over time. But of course, if you address that

Speaker 1:
you'll, of course, uh, find that the economic sort of impact of that increases thereafter. So that's the one thing there. And I think, uh, like I said, transport is definitely a key thing there.

Speaker 1:
Finally, on the social aspect, you know, hospitals and social housing remain an important theme throughout the continent. And I think

Speaker 1:
what I've seen with managers, at least through the interaction thereof, it's still, it's still becoming a theme. Over time, they need to find opportunities that allow for that to be effectively executed. But the themes remain similar to what they've been, uh, viewed, uh, over the past five years.

Speaker 0:
Well, it seems to me as though infrastructure is certainly the backbone of the global economy and hopefully the bedrock for South Africa to spring away its, uh, economic growth. Alex Marila. Thank you very much for sharing your insights. We appreciate your time.

Speaker 1:
No, thank you.

Speaker 0:
Thank you. Thank you. It's been a pleasure