Is Infra the Place to Be as Apollo & BX Believe??
In their recent investor presentations, both Apollo and Blackstone both emphasized that infrastructure and energy would be the main growth sectors for Alternatives in the coming decades. Jon Gray (CEO of BX) even said that his advice to young graduates could be summed up in one word: “Power.”
They use the allegory of pick and shovel for gold rush i.e investing in chips and data centres will yield even greater returns than investing in software to grasp the AI boom.
What are your thoughts on this? How should this influence our decision regarding our career as recent graduates/junior bankers/junior investors?
As a current Analyst 2 at a BB covering Infrastructure and hating this sector, I was planning to lateral to a different sector team and explore Generalist MMPE positions, but now seeing all these MFs talking about this huge Infra opportunity makes me think twice. Should I swallow the pain of 50+ tabs model and running endless sensitivities on data centres to surf on the best wave in recent history? Is my dream of being an MMPE investor adding value to Consumer/Tech businesses pointless given PE firms have now diminishing returns in an overcrowded market?
Sure, there's tailwinds with data centers and such but honestly, I just kind of assumed it's a good safe way for large AAMs to park cash.
Agree with this point. Infrastructure projects / assets are generally big dollars relative to the amount of work / people involved. Have worked with a large pension backed infrastructure business worth $5bn+ EV and they have less than 100 employees. By contrast, sold a £500m services business will 4,000+ employees. I suspect the big GPs prefer places where they can park cash (and earn more fees). Private credit is another area where they can put a lot of AUM to work without the headaches of traditional PE. I don't think it's as returns driven but rather the ability to allocate capital.
100%.
bump considering infra as well
bump
Infra sucks. Seriously. In large cap infra and trying to transition out to PE but if not literally anything.
If you want to work 2x as much on models 50x more complicated for upside far lower than PE, be my guest.
As the poster said above it’s an AUM game = not interesting work
Interesting take. So you'd advise lateraling to a Consumer/Tech IB team?
Depends on your interests of course. But yes I’d suggest pursuing regular PE over infra unless you know for sure you love this asset class over PE
Agree - especially for OP where you don’t love the models and the industry already
The pigeonhole is real - and generalists who try to pivot into infra PE are typically not taken seriously (too much granular industry knowledge they won’t have..)
Can you please DM me? I’m in Infra PE interested in MF
If you find the end markets and subject matter interesting indeed it has fantastic tailwinds and career moat. I’ve found energy fascinating since college and have built a 15+ year career in this asset class. Yes it’s a steeper learning curve and models are larger. Cry me a river
Of course if you love the end market and nature of the job it is great. OP literally said he hates the modeling and end market… Infra PE is not going to be any better than banking
More about collecting consistent management fees than generating high returns, especially at behemoths like BX/Apollo
I say this as someone who works at a utility that is more exposed to the AI play than just about any other business in the world.
Like any business, there are ways to make a fuck ton of money in infra. There are also just as many ways to lose a fuck ton of money in infra. Basically, the entire power play that those firms are talking about depends on AI's growth being real.
To the extent these types actually model demand, what happens when the "hyperscalers will spend unlimited amount of money regardless of the immediate returns because AGI is just that important to achieve" types stop lying about how much money they are going to spend? This is just like the railroads in the 1800s or telecom during the tech bubble. The one big exception is that railroads and the telecom assets (ie - fiber) had long-lived lives. Data centers don't have the useful lives of those assets which means when the collapse inevitably occurs, that JP Morgan-style consolidation won't be anywhere near as viable.
I work in at an infra MF and would recommend against it. Our PE colleagues down the hall work probably 25-40% less on average. Infra is so fucking sweaty dude. If you want a job that embodies analysis paralysis, then it is the csteer for you. The models are often times too big to even fucking open and as the other guy said, we are getting cranked just to achieve lower returns.
Another thing you should think about is carry. Infra hold periods are much longer than general PE but often have the same 2x hurdle so it takes gd forever to realize carry.
Just go do regular PE honestly. If I could go back that’s what I would do. It’s becoming very over saturated. Our associate pool is so bloated and there’s no shot even 50% get VP. Also we are paying retarded multiples for data centers and renewables platforms and in my view this is not a sound investment strategy.
Listen to this guy, ruined my life the last 6 months on a sketchy mid-high teens IRR underwrite, competition for shitty assets is stupid and upside doesn’t really exist, I guess we get deal reps that’s gotta be worth something right.
Same thing happened to me. I blew half a year working on buying a shitty renewables asset. We underwrote a mid teens IRR with substantial follow on equity deployment over the next 5 years. Planned for a 7 year exit. 1 year into the our hold trump repeals ITCs and our case is now fucked lmao. Hilarious that this is sold to LPs as a “safe” asset class.
Ill be somewhat of a counter point as someone who works in infra PE. I actually like my job unlike some of the posters above and find the industry interesting. With that being said if you don’t actually like infra you will hate your life. A lot of my friends who started with me who didn’t like the sector are gone now. Infra is objectively tough for juniors — seniors will have you run every case you can imagine and more. To make it worse many of the models are obnoxiously slow due to the size (or broken up into multiple models). This part can become frustrating and tedious even as someone who likes the sector.
With that said I find the industry as a whole pretty dynamic. It sits at the intersection of business and politics and is constantly changing/ evolving in ways a lot of non-tech sectors aren’t. So, if you like infra, and find all of that interesting, you will enjoy your job. If you don’t, running the Nth case accounting for some obscure potential policy will probably drive you mad.
To your initial question— I think there are major tailwinds right now for the industry. As juniors we are ultimately paid on fee base, so rising AUM is good for us — that leads to more seats / promotions. However, I don’t think that song will play forever and if you are coming into the industry, the next 5 years shouldn’t be your deciding factor. If AI is overblown (I think it somewhat is), a lot of these major investments will be screwed and we will see compression in the space for the funds that didn’t risk appropriately — point being there’s no free ride.
The last point around carry is interesting with holds being longer in infra. I personally don’t fully buy the normal PE higher comp story. It’s true that if you are at a vanilla PE shop hitting 8% (min hurdle) / 2x (carry basis) your carry hits earlier and you will make more, but how many funds are actually hitting 2x rn right now? A lot of funds can’t return any meaningful capital…
To me the question becomes hitting 2x. That’s uncertain at any fund and as long as you can hit your 8% in infra the longer hold allows you to compound additional MOIC which ultimately means greater carry dollars. Yes it’s potentially longer to get paid, but it offers opportunity to get paid and I personally don’t think (adjusting for banger edge cases) that makes a huge difference in the long run. And tbh if you succeed at both, you are still rich.
Very interesting post. I know nothing about infrastructure. Can someone explain why infrastructure models are so much more complex and there are so many more cases? It would be great if someone could share their experience with some examples
Take a renewables model for example. You will a “mini model” for each individual operating site with PPA out 25 years or so. Then beyond the 25 years you will model another 20-30 years of merchant power curves - so say 50 years of revenue projections. Call it the whole life of the asset. You’ll then build down to levered free cash flow, and each site will have its own DSCR-based project debt facility. Now imagine a model with 100+ sites all with different PPA terms, assumed maintenance costs, and debt terms. Also factor in you have to model out all the projects you have in-contract and under construction.
When you distill it down, the actual businesses are very simple. You are just buying a stream of cash flows contracted out 25 years or so. It’s shitty to model because you have so much detail and it is so granular. The models are massive and terrible to work with.
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