Confused about Infra PE
Hi, this may be a dumb question but Infra PE confuses me a lot. The sector seems quite interesting so I want to learn more about it but I've read through the M&I, WSO and other online sources and I find it all really confusing.
Something mentioned a lot online is that Infra PE you're not actually acquiring companies/assets, you're instead purchasing contracts and or financing projects so your financial modelling is based about valuing these contracts/projects rather than businesses/companies themselves. I find this confusing and was hoping someone could explain?
Infra PE also seems a lot different from RE PE wherein RE you acquire a property and rent it out to generate cash flows and then you value this asset which is pretty much how corporate PE works.. but Infra PE sounds a lot more complex and different.
Could someone please help me understand this? Thanks
The following link is a good starting point. Happy to answer more specific questions if you have any.
https://www.wallstreetoasis.com/forums/overview-of-infrastructure-priva…
In infra PE, contracts allow you to accurately calculate future cash flows and pretty much guarantees your top line. For example, a contracted renewable energy project may have a 20-year contract for energy sale with a governmental entity or another investment-grade offtaker. So valuing the asset during an acquisition will fundamentally include looking at and comparing your IRR over the remaining contracted term.
You’re still acquiring assets, but the contracts are important, just like the commercial aspects of traditional PE acquisitions. That being said, lots of assets operate contract-free but these come at greater risk and may fall outside of most infra funds’ investment criteria.
Thanks for the reply super helpful.
So when investing / acquiring these projects / contracts and in general when infra funds are making investments are they:
1) acquiring the physical real assets directly E.g. buying the wind turbines and valuing these real assets based on their contracts? Or 2) acquiring/investing in businesses that owns these wind turbines and valuing the business based on the contracts? Or 3) acquiring / purchasing the contracts themselves so they don’t actually own the real assets and also don’t own the company (if there is one) that owns these assets but instead purchase the contracts? If this is the answer how would this work would they purchase the contracts off the businesses/government doing the project? So basically just offer the financing of the project?
You're still acquiring operating companies that own assets or the assets themselves depending on the Fund's mission, not the contract standalone. Often, you'll see developers bidding for contracts when they are issued by the offtaker and then sell the newly developed asset with the contract, but not separately. As mentioned by the poster below, don't overthink this. Infra PE is exactly the same as traditional PE in many aspects.
OP don’t tie yourself in knots over this. infra pe is often similar to broader pe. you acquire companies or SPVs that essentially behave like companies with lots of services outsourced to other providers. what you are describing is more PPP / project financey things which are a subset of infra indeed, but you are less likely to get over it unless you have your sights on such an organisation in which case you’d already be familiar with the sector. hope this helps a little.
Agree with the above. Infra PE is much more like corporate PE than people expect. You're doing LBOs, equity offerings, and PPP / project finance. It's also a newer asset class so different firms have different definitions of how they approach infra investing - this means your mileage may vary depending on which firm you end up doing infra PE at!
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