Infrastructure - Why focus on Europe?
- 17 July 2024 (5 min read)
- Less crowded than North America
- Aligning with decarbonisation, electrification and digitalisation
- Home to our deepest infrastructure relationships
It may seem natural that Europe’s largest Alternatives manager should offer a Europe-only infrastructure strategy. Our decision was, however, based on several factors including opportunity, expertise and our view that the market was underserved by an evergreen core to core-plus infrastructure strategy. Our infrastructure staff are based in London and Paris, Europe’s leading infrastructure origination centres, and draw on our pan-European network of local offices and relationships.
Europe’s opportunity
For most of the past decade, Europe has been the world’s largest private capital infrastructure market averaging 34%[1] of transactions by volume. Today, Europe and North America are roughly equal[2] in terms of investment opportunity (about a third each of the world market). We expect this pattern to be sustained over the long run.
Surprisingly, given the markets are about the same size, about two-thirds more infrastructure capital is consistently raised for investing in North America than is raised for Europe. This may simply reflect the depth of US capital markets and the number of alternatives managers headquartered in the US.
Europe welcomes private ownership
Europe has a long history of private infrastructure ownership. This tends to generate a more diverse range of opportunities across digital, energy, social, transportation and utility infrastructure than in other markets. This can be contrasted with North America where infrastructure opportunities have been overweight – at least from our perspective – energy with a material exposure to the oil and gas sector (shown under the category ‘Energy’ in the bar chart further down).
We think the above factors signal asymmetric opportunity in favour of Europe. Less capital pursuing a similarly sized opportunity set means we expect Europe to deliver attractive risk-adjusted returns over the long-run. There is nothing especially clever about this conclusion – better outcomes are usually achieved if you don’t compete where competition is highest – especially when the alternative is comparable or superior.
Policy support in Europe
An objection may be raised that North America is on the verge of generating increased opportunity as the Inflation Reduction Act and other legislative measures turbocharge investment in the energy transition. The truth, however, is that REPowerEU and other European support mechanisms are comparable in economic scale, but they are spread across national and supranational initiatives. This is supported by the fact that, over the past three years, Europe has each year commissioned substantially more new renewable energy generation than North America.
Europe leads in renewable and digital infrastructure
Beyond renewable energy, Europe generates the largest number of private market opportunities in digital infrastructure – datacentres, fibre-optic networks and cellular tower networks. These infrastructures are the internet. We continue to observe accelerating demand for data transmission and rising investments in artificial intelligence. Digital infrastructure demand is growing fast.
Renewable energy and digital infrastructure now represent just over 50% of transactions in Europe. This is markedly higher than in North America and the rest of the world.
Long-term approach
An evergreen strategy allows us to be genuine long-term infrastructure custodians. We have built our infrastructure franchise for clients seeking long-dated exposure to assets. In that vein, we judge that three themes will dominate infrastructure this century – decarbonisation, electrification and digitalisation.
A decarbonised economy will be powered by electricity and operated through increasing digitalisation. Renewable energy and digital infrastructure are the keys to delivering that future.
That’s why we find Europe so compelling: it is the leading developed market in this transition. It generates the largest number of opportunities, and less capital is raised for investing here. Europe is our headquarters and home to our deepest experience, expertise and relationships. Today, we have over €15 billion in assets under management in European infrastructure[3]. Considering the opportunities, we expect it will more than double over the next decade.
We focus on Europe. We hope you join us.
Source
[1] Source: Inframation, as at 31 December 2023. 2018-2023 average.
[2] Source: Inframation, as at 31 December 2023.
[3] Source : AXA IM Alts. June 2024. Unaudited figures.
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