For those who chose infrastructure, what was your reasoning and would you do it again?
Basically the title. I’ve heard that infrastructure is very niche and difficult to get out of once you’re in it. I think it could be quite an interesting space in the upcoming decades but am interested in hearing people’s thoughts, even those who considered it and ultimately decided against it.
Bump
Bump
Bump where the infra model monkeys at???
infra PE monkey here. Did 2 years in infra banking and now in my first year of Infra PE. Feel free to PM me.
Pros
- I like the idea of being niche, eventually everyone's gotta specialize and i'd rather know more about one thing than a bit about everything. That's personal preference and yes it makes it harder to leave to do something else but thats what your MBA is for, no need to stay in it if you don't like it
- Modelling is tough but rewarding, 30 year models x monthly cash flows = 360 columns, hundreds of lines and 10s of tabs. Modelling quickly becomes mechanical, but if you can model an infra asset properly, you can model almost anything under the sun. I work on some corporate/growth equity models now and they're a joke its not even close
- I like site visits and meeting the blue collar/operation staff at these places, something else about a critical asset serving as jobs for an entire community, or town
- if you're into politics as a kid, as I was, you will enjoy infra more than other sectors given its correlation to regulatory trends, you will also have a chance to meet some pretty bid guns in politics/business (I have so far in my first year of PE)
- Infra generally does well in both cycles, you just shift capital from one infra sector to another, i.e. when power markets are down, invest in midstream or core+ assets, rinse and repeat whenever there's a flip, that's why infra funds target low to mid teens, its pretty hard to not mess up \
- I think it's really easy to do well in infra, you just have to take uncontracted assets and contract them in some way, and you'll make ridiculous returns because there's always a strategic wanting to derisk something in the sector you're in... it's an easy formula that i see used in almost every successful infra deal... my last two points are basically saying, it's not a difficult sector to do well in...
Cons
- Culture is more traditional than other places, older people generally running the show
- Tough learning curve considering everything is so nuanced (i.e. understanding how the power markets operate, or development/construction models)
- Modelling is mind numbing sometimes given how much more work an infra model requires vs corporate model
Thanks for this Are you able to comment on:
- The biggest differences in the DD process vs corporate PE - for example I imagine less CDD focus on market / competition etc.
- With so many "infra" funds now being launched - some invest in "infra-like" assets, some in traditional heavy infra, many now in climate / energy transition. Is the latter very different to traditional infra investing and what're your thoughts on which type of fund you'd join now or how to assess which funds work on the most interesting assets?
- How do infra funds differentiate between each other? Seems like a lot of capital with low return expectations and already contracted future cashflows (high predictability) would mean there is little price differentiation when bidding...hard to understand from the outside
I am in CD at a utility and I chose this role for two reasons.
(1) It was the CD job I got an offer for.
(2) This job my first one after school. I previously interned at an aerospace company (which is also one of the 100 largest defense contractors in the world) in CD. I say this because I am looking longer term to get into PE. I like the specialized nature of the infrastructure world. It goes well with a CPA and soon to be JD. But I can also spin this in PE interviews for non-infra roles by explaining how I have a background in this more technical, regulated, world with tangible assets.
Now it means I will have to stick with industries that focus on heavy regulatory/asset-heavy businesses but that is fine with me. I am not really interested in software businesses and other similar asset-light businesses.
Although I do also have an interest in clean tech VC roles but that is a whole different can of worms
I 100% agree that the next 20-30 years will be interesting. A lot more will be happening in this space then it used to. The PE/advisor side of things don’t have the best economics but the actual space itself is going to be very interesting
what do you mean by "the PE/advisor side of things don't have the best economics"? if that's the case, what side has the best economics?
If your title is accurate and you're looking at analyst roles, I wouldn't be too concerned about the "too niche, difficult to get out of" - no 24 year old is expected to be fully locked into their career path and you get some leeway as a junior to hop around different coverage areas. Infra is ridiculously complex modeling and you can sell the hell out of that if you decide you don't like it and want to leave. Don't think it would be difficult to lateral to a coverage area if you have a good story and can talk about your work in a context that makes sense to a more corporate-facing sector.
Associate/VP, yeah you do start to specialize but that is true of any line of business.
I actually recently got into infrastructure PE and can agree with some of the points listed below.
- There is definitely a sharp learning curve that I still am figuring out, there is a lot of information to read, and a lot of googling when a CIM comes across my desk
- The modeling (which I should be working on right now) is much more intensive than any prep course I've taken thus far, but with that comes with fast onset learning that I don't think I would've gotten somewhere else
- The specialization aspect comes under fire often within infra and RE, but I think that's overblown by most of the PE industry and by people on this forum. At the end of the day if you understand cashflows, contracts, and understand the basics of how a business operates you're going to be fine.
- Infra shops are more likely to take a chance on someone who doesn't have the typical background required for other PE shops, and with that comes a really diverse group of individuals and a much more appreciative culture.
- Tangible assets are dope, funding businesses with real working people and funding projects that can supply thousands of jobs to American industry is dope.
Harder to lose money, essential services, less hype.
Great answers above. Would also add that there's a lot of thematic tailwinds coming in from LP allocation and many shops are viewing their infra port as their growth driver (true for BX/KKR/APO at least). You can find support for this just referencing LP generalist PE allocation (hint: going down) vs infra & what target allocations by 2030, 2035 etc are for various pensions (OMERS, Calpers, etc)
The biggest infra funds nowadays are either at same scale or even larger than traditional flagship PE vehicles. Would not surprise me if I saw GIP/SP/Brookfield/KKR announce a $30bn fund in the next 2-3 years (right now they're $20-25bn-ish on latest vintage). These sponsors have shown not to be very aggressive either from a credit docs side (both in pre-structuring and abusing provisions after the fact) so their deals often get underwritten more easily by banks too. Ex. Lev fin evaluating giving 7x to some $100mm RR EBITDA oat milk business vs a portfolio of "resilient" fiber/data center assets w/ some moat and offtake contracts in-place. The risk w/ infra under-writes is all frontloaded (equity CapEx) so if you can get through the early years you end up just clipping yield
There is some hot correlation to the economy (many structured assets have inflation-hedged revenue contracts) right now but even when/if CPI tapers off, but the effects of decade+ long QE are not going to dissipate any time soon or any time fast, so infra will likely not stop being a relevant investable theme in our lifetime
For someone in their 20s, comp is high (not as high as PE at the very top levels but still very good) and longevity will likely be long so it's a pretty attractive value proposition. If you love O&G or tech then still pursue those fields but if you have no preference coming out of school you can do much worse than be in infra
Great thread
In an infra fund that’s doing more core plus infra now anyway so it doesn’t feel much different to corporate PE.
I see infra as a bright spot with tailwinds and massive fundraisings whereas the rest of the PE space has been falling off. I also like working with numbers
The longer hold periods in infra also means you can take a long term view on investments and make a sustainable : viable impact on portfolio companies rather than the stress of having to flip a business on fund end and market liquidity
Anyone reading this thread should do some homework about the sector outlook more broadly. Infra PE is challenged because way too much capital has been raised in the past couple of years relative to the opportunity set and you're often competing with lower cost of capital investors (pensions, SWFs, silly PE tourists who convince themselves because something is "infra" they can pay a ridiculous multiple for it). There's also a much smaller universe of assets than corporate PE which has led to significant mandate-creep. Look no further than some of the sky high valuations for things in the past five years that haven't panned out, several notable cases where a fund has structured a private investment into a public utility at a premium to the public equity value which goes against everything corporate finance theory will tell you about FMV and liquidity and is prima facie evidence of private capital chasing deals, and some of the highly questionable investments funds have arbitrarily decided to call infrastructure because they're "safety critical" to justify 150%+ of the multiple you would ordinarily pay for the business. There's also huge arbitrary political risk (both in terms of critical approvals - see NY offshore wind, solar incentive changes in current tax bill for recent examples, and reputational risk - see Thames Water). All of which makes it hard to outperform in the long run (especially since the contracted nature of these assets means they are priced to perfection and there tends not to be big upside windfalls like corporate equity). And finally what some of the first year assos in this thread might not have realized yet is that most (all?) legit infra firms are sweaty AF - like realllly sweaty.
Totally agree it's a cool space and that career specialization can be very good and a differentiator but wanted to temper some of the hype for anyone who stumbles across this thread. Corporate PE has plenty of problems too but hopefully this highlights some of the unique headwinds in infra.
Development platform value which underpins a lot of core plus infra investing will go through cycles like with corporate PE. Hard infra assets will be just fine regardless of cycle. Infra debt, and I'm talking GPs that focus on investing in sub-IG paper, is likely to yield a better long-term career than infra PE given ZIRP is likely gone for good. Better downside protection given collateral mostly backed by hard assets, and returns which out-compete core infra PE funds.
Solid post. Agree mandate creep is a hot topic.
LevelTen on the software side will be interesting to track. Aurora might do better relatively but TPG Rise had a comically broad mandate to start (ex. Whatever they felt like)
Work in infra at a MF. I like this job because we do more work than our PE counterparts, and it’s extremely sweaty, but in return we get lower returns too :)
Haha
Appreciate the recent comments on this. What about infrastructure services? Meaning funds that still invest fundamentally in companies, but companies that deliver products/services to utilities and other infrastructure. I would still classify this as corporate PE but very tangential to infra. Does anyone have strong perspective on the tailwind/headwind dynamic in this adjacent space? There are some dedicated funds that do this. And other industrials type funds that obviously look at these assets. Thanks a lot.
Regular infra MFs / UMMs have already begun looking and investing in infra services fwiw
Helpful. So would you say it’s just a subset / branch of infra at this point? As in, don’t create a huge false distinction between the two asset classes given they’re all linked to the same trends?
This is just private equity. I am at a traditional UMM and we do these and competing bidders are all PE funds
That’s what I would have thought. More traditional corporate PE looking at this (e.g Industrials vertical). Versus a true infra fund.
Exercitationem architecto facere veniam. Et ea tempore autem eum. Ut facilis magni impedit cupiditate.
Voluptas reprehenderit voluptatem qui et eum sed neque. Nam a in aut consectetur aut natus nulla. Accusamus est temporibus odit minus libero id amet.
Accusantium totam minus et occaecati quidem eos dolore. Ipsum in quisquam aut ipsam odit. Saepe reiciendis sapiente sint et quia omnis debitis possimus. Adipisci et eligendi doloribus reprehenderit est vel nesciunt. Quibusdam animi ut consequatur voluptas facilis dolorem tempore.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Qui doloribus cumque nemo omnis ab et quis. Voluptatem sit repellendus iste eius. Minus provident nesciunt suscipit rerum eos.
Error sapiente distinctio eos autem et deleniti. Aliquid tenetur minima ab aut illo. Possimus est aut accusantium consequatur sunt quo reprehenderit rerum. Quia beatae molestias est facere assumenda vitae aliquid quaerat.
Hic reiciendis qui dolorum fugit modi. At unde pariatur et quibusdam quia ex. Sapiente assumenda velit ratione numquam quae.
Eaque necessitatibus maiores incidunt numquam perspiciatis aut. Eum aut optio ea quia earum ipsa praesentium. Omnis eveniet hic molestiae adipisci modi.