AMA - Infrastructure PE & IBD

juststop.'s picture
Rank: Senior Baboon | 204

Background:

  • Based in NY
  • BS in finance from a target school with a 3.3 GPA
  • IBD internship in MM bank on the infrastructure team, converted to full time
  • 2 years in infra IBD
  • 3.5 years in infra PE at a core GP fund and a pension fund
  • Started a few months ago at a secondaries shop building out their infra platform

I work across the infrastructure spectrum (transportation, telecom, power, asset leasing, etc, etc.).

Happy to answer any questions about infrastructure (buyside or sellside), secondaries v. direct, or recruiting.

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Comments (62)

Jan 16, 2020

Should I be long globally listed infra for the next several years? Askin for a friend

Jan 21, 2020

If you like

Jan 16, 2020

Hey there, my question is very specific: did you work with any model auditors?

and have you seen people transferring to infra IBD from model auditor's side? If not many, do you think this move could be feasible ? i.e., the skills model auditors get could be valuable.

Jan 21, 2020

I have worked with many model audit teams, mostly with the Big 4.

The boutiques are better respected, but, in general, I have never seen someone make the shift to IBD. Only the shift from IBD to model audit

I think to make it work you'd need luck and a really solid relationship with a banking client

People think model auditors lack some of the critical thinking IBD requires, so that's the main hurdle

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Jan 22, 2020

Interesting. I'm at one of th boutiques leading the league table in model audit. I know 2 previous analysts jumpe to the buyside directly.

Regarding your comment on critical thinking, I have had different experiences, but, thanks, good to know such a possibility exists.

Jan 16, 2020

How do you guys compete on absolute returns vs traditional buyouts?
What are your thoughts around the correlation between public markets vs infra funds?
Do you use BD/origination guys to source new investments? Not sure there's a need for it since there's always scale to infra.
Where is most of your deal flow coming from?
Lastly, happy in infra? sounds like a good spot to be at the moment. Is Comp in line with traditional MM PE shops out there?

Jan 21, 2020

Infra funds targets 8-high teens IRRs. PE buyout shops are usually 15%+ so I've heard

My firm has a whole quant team trying to answer exactly that, which is they don't but it depends on the specific sub sector. Infra has a lower beta than the market and can be defensive. Macro plays

Not so many BD guys, but bigger outfits might have some "sector experts" or "operating partners." Eventually I will become a sort of sector expert and have built up my network there. Or use bankers for intros

Deal flow is a lot of M&A from other financials. More sophisticated pensions will trade infra portfolio companies too. Government privatizations had their heyday but slowed down. Utility take privates are going off right now too

I've been happy with my comp. MM PE is a decent gauge, but can be pretty high up at like a Blackstone.

I've liked infra. I always thought it was easier to wrap my head around a tangible toll road than something like a tech company

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Jan 16, 2020

Thank you for doing this, hard to find timely/reliable infra/PF info. I had a couple questions:

  1. Did you have any coworkers at both buy and sell sides that came from non-traditional backgrounds? I'm currently with a reit that doesn't invest infra assets (though we're looking at regional airport deals), but I'm trying to move to a PF/infra IBD group and was wondering how experience was looked at.
  2. How's your experience been so far in the space? Do you have a preferred niche asset class (transportation, energy, etc.)?
  3. From a deal flow, exit, and general work experience perspective, is there a strong emphasis as with other IBD industry groups to be at the larger/better banks' groups (Macquarie, French and Japanese banks, etc.)?
  4. Are there any specific networking or industry groups to join that you recommend? I'm in ULI which is great for real estate, but unfortunately there isn't a large infra component to it, at least in my market.
  5. @Macronmania asked a good question, how are you liking lifestyle in infra?

Thanks again for doing this.

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Jan 21, 2020

Infra is generally forgiving and creative with non traditional backgrounds. I think there's a way to spin REITs as infra related. You can REIT telecom towers, roads, rail, you name it. Or social infra (schools, hospitals, parking lots, prisons, etc) could be a good segue

I would say first infra is trying to be "green," so we generally don't like energy associations :) But yeah I like transportation more than power, although my top three favorite types of power generation are landfill gas, nuclear, and waste-to-energy haha

Infra banks have their own ranking system. There are a lot of boutiques that also dominate the infra space too. Well respected shops are Macquarie (crap pay, amazing learning experience), Evercore, RBC

I'm in INFIN and Women's Infrastructure Network. You meet a lot of people through conferences or banking client events, though.

Infra has a lot of dry powder and returns are tight, so it's getting to normal PE hours for a lot of the good groups. However, given that the infra crowd can be on the quirky side and shit like roads are not sexy, you have a pretty good group working in the space. It's also still a relatively small space too, so you have a great chance starting junior to make good connections

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Jan 25, 2020

Thank you for the insight, that makes a lot of sense. Could you speak more to any differences/transition you faced between the GP fund and the pension fund? Did you prefer one more to the other, how did your experience at each compare and what were some pros/cons you were thinking about?

Jan 16, 2020

Is climate change driving investments in infrastructure in your zone?

I tried.
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Jan 21, 2020

Yep, renewables and efficient transportation

  • Analyst 2 in IB - Gen
Jan 16, 2020

thoughts on project finance groups at BBs? how do exits usually compare to infra/energy/power coverage?

    • 1
Jan 17, 2020

Japanese and French banks, and some Spanish/Latin American play major roles in PF. Of course your GS/MS/JPM still have (significant) presence here. Depending on the structure, a PF team might be responsible for both the financing package (acting as lender) and the advisory work. If someone is only in the coverage team, depending on the structure, you probably won't do too much work regarding financial close of projects, which is very important in all infra deals. I'm also not sure how much modeling you do in a coverage team. This is bank specific so i could be wrong here.

  • Analyst 2 in IB - Gen
Jan 18, 2020

thanks for your input. in my experience the regional/french/japanese banks just throw money at every project and are mostly active in lending, with not a lot of exposure to advisory/strategic aspects.

ive worked in PF before and we did both advisory (espec for bonds) and execution/lending, but would be nice to hear OP's color on buyside recruiting out of a BB group like this

Jan 21, 2020

So PF at a BB either means debt or P3s. Infra debt likely gets you more infra debt, but infra debt funds are gaining a lot of interest (see: Macquarie, GIP, ECP)

P3s are hard deals to do that have a lot of credibility but very few people do still, so a dying banking coverage area.

It's possible, but you need to have your angle at the right place

The Japanese and S. American banks the other guy mentions are mostly DCM groups.

However, any and all infra experience is scant so you could get the right fund on board. It's not unheard of

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Feb 4, 2020

That's odd - heard from a Jefferies banker in their public finance group that P3 was really heating up. That conversation was about a year ago

  • Analyst 1 in IB-M&A
Jan 16, 2020

Any info on MIRA?

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Jan 21, 2020

Hyper political. #MeToo hasn't made it over there yet

  • Analyst 1 in IB-M&A
Jan 21, 2020

Is pay at MIRA similar to a traditional Infra PE fund like the one your working at? (asking because seems you worked at Macquarie and now Infra PE so might have exposure to both)

  • Analyst 1 in IB - Ind
Jan 16, 2020

How has your comp progressed over the years?

Jan 21, 2020

Banging

Granted, I went from IBD at Macquarie to PE, so my expectations may be skewed

Jan 17, 2020

What drew you to secondaries?

Jan 21, 2020

Direct investing is very competitive so it's gotten repetitive/cookie cutter in terms of day-to-day and you're getting more finance bro-y types who alter the culture

Funds in the space only started ~10 years ago. A lot of funds are at a good time for secondaries. Infra deals are frustratingly unique, infra folks have always been able to get creative, so there's a lot of opportunity to do interesting deals in secondaries. The deals I've seen so far are anything but the standard mid-life LP stake buyouts

I think another big differentiating factor is deal time. A direct infra deal can be 9 mos to multiple years from start to close. Secondaries deals are faster. Some of the secondaries PE guys I work with have done a deal from start to finish in 2 weeks

In directs, you know 100% about 30 companies in your career. In secondaries, you'll learn 30-40% about hundreds of companies. That level of variation in my work was appealing, too

I got bored and burnt out, took three months off work, then made a switch to secondaries for the hours and the work being more interesting imo

    • 1
Jan 17, 2020

Differences between doing infra at a secondaries shop vs infra at a standard PE shop?

Jan 21, 2020

Infra in secondaries is no governance, short duration preferred equity

Direct infra comes with all of the asset management and governance and higher pressure of direct PE investing

Comp reflects the great stress and hours, though

Jan 21, 2020

Infra in secondaries is no governance, short duration preferred equity

Direct infra comes with all of the asset management and governance and higher pressure of direct PE investing

Comp reflects the great stress and hours, though

Jan 17, 2020

Compensation in secondaries space?

Jan 21, 2020

Between banking and direct PE

I took a pay cut from the pension/funds trajectory but I still think I'm better off than same level in banking slightly

  • Analyst 2 in IB - Ind
Jan 18, 2020

Hi, I'm currently interviewing with a secondaries fund for their infrastructure secondaries team . I'm actually in TMT IBD so have no infra experience but the fund is open to backgrounds.

  • how do you value the LP stakes in infra funds, that you're looking to buy / sell ? Please could you go into as much detail explaining the valuation, analysis and the process from start to finish? thank you
  • how do you look at infra co-investments? Please could you also explain the investment process and modelling methods as much as possible, thanks
  • they've told me comp, is it ok if I PM to find out if this is market or below market as it feels a bit low? (10-20% lower base salary to IBD and bonuses of around 30% for analysts and 50% bonuses for associates at the fund)

Thank you

Jan 19, 2020

This sounds very low on the bonus side IMO.

Jan 20, 2020

Depends on the region, for Europe that would be on the high end.

Jan 21, 2020

I think this is where I'm supposed to pitch a mentoring session . . .

Comp doesn't sound insane but a bit low. You can DM me specifics and I can provide more concrete guidance

  • Intern in IB - ECM
Jan 28, 2020

Actually I'm also very interested in how you value those LP stakes...could you please briefly explain? I can also PM if necessary

Jan 23, 2020

Thoughts on battery storage?

Jan 24, 2020

Interested in this. It's apparently a popular trend with most players looking into means to deploy in the space but so far have seen limited activity from sponsors (more so on development side and VC).

Array

Jan 26, 2020

Battery storage right now is being deployed at utilities and isn't a standalone investment yet.

The market needs to develop more and the technologies are still expensive.

The key things to think about with batteries are infra investors are always thinking LT (think 25 years plus). We are hesitant to invest millions of dollars in companies that haven't been around that long and may not be in the future. There are also too many different technologies out right now and we don't know which ones will prevail. We also don't want to bet on someone now and when those batteries need maintenance 10 years from now, no one is around to service them because they had a niche technology and they went bust.

I think the market will work itself out as we need batteries soon. The push for renewables means less grid stability with rising power loads, so you need a battery to help capture the renewable power that's generated unreliably to smooth it out. Right now the main use for batteries is peak load shaving, which is a good cost saving measure, but it's more of a nice to have and not a necessity yet.

That got real jargony, so let me know if I can clarify anything

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  • Prospect in IB-M&A
Jan 27, 2020

Thanks for doing this. Wondering what's your thoughts on infrastructure investments and funds in Asia? Also, is it plausible to jump from US banking to Asian infra funds?

Jan 28, 2020

Asia has been booming and everyone's rushing to open an Asian office, mostly in Hong Kong or Singapore. Some people will also jointly cover the Middle East out of their Asia office. Some places will cover Asia out of an Australian office. A lot of the deals are in India right now. A lot of LPs are Asian too, further justifying establishing a presence.

I've mostly covered the Americas, so can't speak to any Asia-only shops, but check out IFM, Macquarie, GIC, or several Canadian pension funds. These places have US presences that I've seen staff up Asian offices from their US/CAN staff.

While there's some push to get local staff, most funds in Asia are early stage so they'll just take whoever wants to move.

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  • Intern in IB-M&A
Jan 28, 2020

Hi! Thanks for doing this. I'm starting full-time as an analyst in Infrastructure PE in July. The fund invests across all sectors within Infra with a focus on midstream O&G, renewables, communications and telecom, transportation (including aviation), and water and waste. It is my understanding that, early on, I will have somewhat of a preference as to which sectors I will cover / work with, so I would love to hear your opinion on which you think are the most interesting or provide the best learning experience for someone new to the sector.

Most Helpful
Jan 28, 2020

At the junior levels, I recommend trying to work on as many different sectors as possible. This will help you truly understand the "infrastructure narrative." You'll start seeing all the common threads among the asset classes. It will also help you better understand your IC with what questions are common across all your deals versus how they think through different sectors differently. Alternatively, if you're not able to jump around as much, I would base your decision right now on what team you like working with the most and who's good at advocating for their people when it comes to comp. If your team says your good, you can always switch and try something new in a year or two.

The equity check size your firm is willing to cut makes a big difference in the types of deals you'll do too. How your firm describes infrastructure makes a difference, too. My definition (and the definition all of the firms I've worked at too) is that it must be an essential service. A lot of firms are bending the definition (i.e. EQT just bought an amusement park franchise in their infra fund, which elicited a large eye roll from my team)

With that said, I'll provide my thoughts on each sector based on your list:

Midstream - you'll focus A LOT on your contracts, credit quality of offtakers, and basin reserves. Imo, I don't like midstream very much as this is more PE-like and the deals get more cookie cutter. I also see it as a "dirtier" sector and I personally try not to do it for that reason. The beauty of infra, in my mind, is the variety of deals even within a sector and this ain't it. Some guys really like feeling like cowboy though and always going to Texas and Oklahoma doing midstream deals. The market has been tanking her in the last ~3 years, similar to the E&P market.

Renewables - similar analysis to midstream (bloated market, deals are very similar) but I'd prefer to do renewables given the more "moral" element to it. The deal flow is high but given its so competitive, there's always some insane buyer who comes in with like a 5% cost of capital that blows everyone out of the water.

Comms - This space has PE-like returns but the interest factor of some really bespoke infra deals. They can be challenging but a good way to learn a lot. If your firm has a real estate team, it tends to be valuable to work with them, as every comms deal I've done and we've run by our RE team, they price it differently/lower than us.

Transportation - this one is my favorite given how diverse this subsector is. Expect to dig deep into macroeconomic forecasts and drivers of the local economies these assets operate in. Contracts are really important here too as most transport assets have some element of government ownership or backing.

Water - deal flow here is spotty and mostly consists of water utilities or desalination. Both are interesting, but don't expect a very active market.

Waste - Waste has some similar characteristics to transport in that local economies matter in your forecast. Waste has much more PE-like returns. A lot of infra investors won't look at waste deals that very industry specific as they're too correlated to another sector and not resilient or high yielding enough (i.e. E&P waste, demolitions, construction waste, cooking oil waste management).

OP, what about power generation, transmission & distribution, or utilities? Does your firm not actively cover them?

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  • Intern in IB-M&A
Jan 28, 2020

Really appreciate the write-up. As for the other sectors (power, transmission, utilities), I'm not sure if they are within the investment criteria. The fund is less than 1 year old, so there are only a few deals to look at. The sectors I listed are the ones I found in publicly available investor presentations.

Interesting point about the real estate and communications overlap. The firm I'll be at has a real estate team so that should create an interesting dynamic.

Jan 28, 2020

Have you seen consultants that work with your firm as a client exit to your firm? If so, what roles do they typically get?

Interested in how different CDD consultant roles end up vs management / operational consulting for the manco

Jan 28, 2020

In terms of CDD, we usually don't see them exit to generalist infra funds although I could see a consultant exit to a sector-specific fund (i.e. telecom consultant exiting to like a Digital Bridge). One fund I worked at had a guy who did traffic & revenue forecasts, but he wasn't an investment professional per se, more just like an in-house consultant.

The only advisors we've ever hired after a deal is bankers we worked with and liked. We assume anyone doing CDD like being in a more niche space and has a slightly different skillset.

    • 1
Jan 28, 2020

Does this mean you worked in Project Finance? Like with P3s and the like? Am curious because Project Finance has been an interest of mine for some time. I will be starting in a Public Finance role in the summer and was wondering if I could be able to go down the Project Finance route rather than just straight underwriting Munis.

If so, could you give some color on your work in Project Finance? Would you recommend it over normal PubFin?

Jan 28, 2020

I worked in an investment bank in the infrastructure coverage group on a team called Government Advisory for about a year before that team dissolved and everyone was just doing infra M&A. Our goal was to advise governments on doing P3s and running their processes from the sellside; main work products being a Value for Money analysis, a full P3 shadow bid model to determine either the availability payment cap or subsidy cap, and drafting the RFQs and RFPs.

It's been a while since I've done P3s and the market has likely changed a bit, especially in terms of deal size. I think you could probably swap public finance for project finance.

But I think project finance now is dominated by the consulting firm advisory arms and independent shops like PFI. People at those shops will have muni experience too, so you're not alone, and the debt is important in these deals given they're likely 90% levered.

I would choose Project fin over PubFin, but my interest in the debt markets is weak. Project Fin gets you across the capital structure and it's more than just models, which I like. It is a little more consultant-y though, if that suits you.

    • 3
Feb 4, 2020

Worked in a similar P3 advisory shop which provided project structuring / VfM analyses / modelling and etc. to government - however (at least in the U.S.) P3s have slowed down a lot in my experience. You learn a lot from the analysis and negotiations and tbh it was some of the most intellectually stimulating work I have ever done - but the annoying part is that UStraditional mega toll road P3s have been far and few in between (peaked in Virginia/Texas in the late 2000's/early 2010's, but half dead now) and we had to take on a lot of random BS "strategic" consulting assignments to fill our time or just run follow-up analysis for old deals (e.g. when a refi comes up) to make sure that the concessionaire isn't screwing our client over...

Most interesting project I did was definitely trying to structure a rural fiber network P3 as a hybrid AP/commercial revenue deal, but of course it fell through due to politics, some of the clients were just painful to deal with in terms of expectations (every fiber deal has fallen through, except the one in Kentuckybut that was different and an epic fail for the gov't in many ways)

In the end I jumped to M&A (non-infra), but honestly if deal flow were more consistent (maybe I was just at the wrong shop) I wouldn't hesitate to jump back into P3s, really enjoyed the game theory aspect of negotiating concession contracts, because there's a 30 year partnership at stake. By comparison, I find M&A to be far more "bro-y" and far less intellectual - don't see myself making it here in the long run, the analysis I find myself doing is a lot of high level BS and success = being a good salesman, that's it... Not a lot of interesting risk/de-risk analysis, just put in some earn-outs / R&W and then once the deal is done it's done, no going back (boring

Jan 29, 2020

Can you talk about your experience at a traditional infra fund vs a pension infra group. Maybe if you can talk about investment philisophy and culture. What you liked and disliked in each?

Thanks!

Jan 29, 2020
Comment
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  • Analyst 2 in IB - Ind
Feb 4, 2020