Interviewing For Infrastructure Investment Roles

There seems to be a growing interest in infrastructure on WSO and I've seen a number of posts inquiring about the recruitment / interview process for infrastructure specific funds. I've had a number of people help me out in this area so I thought I'd summarize what I've learned with the hope that someone finds it useful. For those who are thinking about recruiting for a buyside seat in the infrastructure space, you've probably realized that there aren't a lot of infra specific prep resources out there. I'm going to try and cover the broad strokes and hit on things that I think are particularly important, but happy to address more specific questions to the extent that I can. Most of what I will focus on is specific to 'why infra' and the case study as I believe these aspects are really what separate an infrastructure process from a more traditional PE interview.

The intention of this thread is not to provide an overview of infrastructure, but I would encourage anyone who hasn't already to take a look these threads:

https://www.wallstreetoasis.com/forums/overview-of-infrastructure-private-equity

https://www.wallstreetoasis.com/forums/renewable-energy-pe-overview

https://www.wallstreetoasis.com/forums/qa-infrastructure-pe-ibd

Know What You're Looking For

The great thing about infrastructure is that its definition has become so broad. Power & renewables, utilities, airports, toll roads, hospitals, data centres. All infrastructure. As a junior you can get a breadth of industry experience without siloing yourself. However, this can be a bit overwhelming especially if you've never worked your analyst years in infra. My advice for anyone looking to jump into the recruitment process is to have conviction in your story and what strategy you're targeting. There are a ton of large cap players who have generalist programs, but there are also a lot of MM/UMM shops who are refining their strategy into more specific segments of the infrastructure space. As you can imagine, if a shop is running lean it can be fairly challenging to be effective in all areas of the infrastructure spectrum and so these places are choosing to get really smart on 2-3 subsectors. The reason I bring this up is because a lot of the household name megafund infrastructure programs still put a big emphasis on pedigree. There are quite a few MM shops that I've seen hire individuals from less traditional backgrounds and if you can demonstrate your interest in a particular industry / strategy, you can probably position yourself favorably in a process where you're not competing against the BB/EB analyst who went to H/S/W. Of course landing a role at Blackstone Infrastructure would be phenomenal, but there is only a small subset of us here who would get their foot in the door. That being said, the learning opportunities at some of the smaller funds is just as good and these should not be overlooked.

Show Interest

If you're interviewing for an investment role, your interviewer is going to want to see that you can put your investor cap on and speaking intelligently about infrastructure. For those who spent their analyst years in infrastructure, expect to get grilled on the specifics of your deals. This is no different than the expectations that would be set in a more traditional buyout shop interview. If you've spent time in the infra already, you also know the lingo. This is where I think people who haven't worked in the space are behind the 8-ball. If you are really interested in infrastructure but haven't worked in the space before, the bar is naturally going to be set lower heading into a conversation. If you spend the time getting to understand the industry and demonstrate genuine interest in a subset of the space you will stand out. I can't tell you how many people I've seen stumble through a response to 'Why are you interested in infrastructure?' or 'Can you tell me what trends you're following in the infrastructure space?'. You'd think this would be a no brainer, but apparently not. If you haven't worked in infra and can't demonstrate that you've spent any time reading up on the industries that interest you, what reason do I have to push you forward over someone else who can probably hit the ground running? If I see an analyst from a non-related industry group who can talk passionately about infrastructure I'll generally walk away feeling good about that interaction. It's no secret that ambition and curiosity go a long way.

Modelling Test / Case Study

This is where I think the interview process really starts to diverge from your traditional buyout process and where I see most candidates struggle. There are a few different mutations of these case studies, but they generally aim to test the same skills. Before I jump into the specifics, I want to highlight that some infrastructure funds will administer a case study that is akin to what you'd receive at a buyout shop (i.e. your LBO modelling test). The purpose for doing this is that they can assess one's excel capabilities / financing knowledge and not handicap anyone for not having worked in infrastructure before. For those of you who spent your analyst years grinding through project finance and tax equity models, it is worth mentioning that you may want to practice a few of the more traditional LBO-style case studies. While the modelling isn't hard, it is a bit different than what you're used to doing, and under a time crunch you want to be sure that you aren't putting yourself at a disadvantage.

Case Study Type 1: Traditional LBO

As mentioned above, some of the bigger funds have been known to administer the LBO style modelling test. Typically you are provided with 3-4 hours to complete this test where you would be asked to build a 3 statement LBO model accompanied by a powerpoint deck. There are a ton of guides out there on how to complete these and numerous threads with individuals trading old cases.

If you've never built an infrastructure model a lot of what I'm about to say isn't going to make any sense. Totally normal, but you have some work to do. Ed Bodmer has a video for basically everything project finance / infrastructure modelling related. You can find his resources here: https://edbodmer.com/project-finance-exercises/

Case Study Type 2A: Short Form Construction Stage Infrastructure Model

This is a fairly common infrastructure modelling test where you will also be provided 3-4 hours to complete a model and presentation. Within this type of case, there are three mutations of a case study that I've seen. The first mutation, what I'll call "Type 2A" is a construction stage, fully/partially contracted infrastructure asset. In this type of case study you will be given some or all of the following assumptions and be asked to model out returns. This is an example of an actual prompt I received for an infrastructure test (I can't remember the exact numbers so I'm using dummy figures to get my point across)

• Assume you are a developer who is constructing a solar asset with a 1 year construction timeline and an asset that will have a 30 year useful life
• The cost to construct this solar asset is $500mm spread evenly over a 12 month period
• The project has a nameplate capacity of 200MW and the asset will expect to produce power at a gross capacity factor of 30%. Assume degradation of 0.25% per year.
• The asset has arranged a 15-year power purchase agreement at $100/MWh without any escalation. Assume the post-contracted pricing for the power produced after the expiry of the PPA is $85 in real 2022 dollars escalated at inflation.
• Opex for the project is contracted under a full wrap EPC at $25mm per year escalated at inflation.
• Assume a tax rate of 25%
• Assume the asset is depreciated on a straight line basis over the useful life
• Assume that you procure a construction facility at 70% gearing, which will be refinanced by a long-term debt facility sculpted to contracted cash flows at 1.30x DSCR (interest rates for the facilities will typically be provided)

Based on this information, you would be asked to build out the construction spend profile, the construction debt draw downs, an operating model consisting of the generation profile, tax & depreciation, sculpt the long term debt that is used to refinance the construction loan, and calculate returns / sensitivities. The amount of time you are allotted will vary based on the complexity of the prompt. This type of test can also be based on a concession based asset with an availability payment (e.g. a toll road concession P3 with a government). 

Case Study Type 2B: Short Form Operating Stage Infrastructure Model

This version of the case study is a bit easier. Generally the assumptions are very similar to what you'd get provided above, except you are modelling out the acquisition of an operating asset. In prompts like this that I've seen, you'll typically be given the assumptions required to build out the operating model, and then will get asked to sculpt a back leverage financing to get to some form of a post-tax levered return. Based on the assumptions provided you'll get asked to back into what you would pay to acquire the equity in the project given a return requirement of xyz%.

Case Study 2C: Long Form Infrastructure Model

This version of the case study will typically span over a weekend where you'll have 48 hours to build a model and prepare a more fulsome set of presentation materials. Basically a mock IC presentation. In instances where these prompts have been issued, it's typically the build of a financial model to value a publicly traded name. In order to occupy two days of someone's time, you generally need quite a bit of information and so going with a public name is easier. In this instance you generally won't have to build an infrastructure-like model described in 2A/2B above, and can focus on a more traditional DCF / public comps analysis. Generally the infrastructure names that you'd be given are operating platforms so you are valuing a broader company as opposed to a specific asset. I've actually seen a fund prompt candidates with a 1 week timeline to complete a case with materials comprising of 20+ slides. This is rather excessive and definitely not the norm.

Career Longevity

Not specific to the interview process, but I thought I'd provide some additional color on why I think this space is great to be in from a career longevity perspective. Infrastructure is seeing significant growth right now, and there are various pockets that can expect to benefit from decade long tailwinds, particularly in light of medium-long term carbon reduction targets. From a macro lens, the broader sector that underpins your job is incredibly stable, which is great to hear for us risk-averse PE lemmings. From a micro/job specific lens, because the technical skillset you develop in infrastructure is a bit more niche, it becomes less common for these platforms to develop a two-and-out program. It's a lot more efficient to train up an associate and promote them. You'll also find that a lot of infrastructure funds don't often hire MBA grads for this reason and typically promote from within. I've seen a lot of mid-to-senior level lifers who never pursued the MBA because they were just promoted directly. This is a trend that I think is becoming more common in buyout funds as well, so maybe not an infrastructure thing.

I'll pause here for now, but hopefully some of you who are interested in pursuing an investing career in infrastructure find this useful. Happy to answer any questions or expand on areas which I may have glossed over.