Infrastructure PE vs Traditional PE
What would you all consider the pros and cons for Infrastructure PE vs. Traditional PE. It can be on all levels MF vs MM vs LMM, comp, balance, growth in the industry, growth professionally, flexibility to move to other roles, etc.
Idea behind this is to gauge how the different kinds of roles stack up against each other on a pros&cons basis
bump
Bump
Pros: No balance sheet modeling. Cons: No balance sheet modeling
Why is that a con? Ultimately, in both cases you're looking at cashflows to equity so isn't it all really about the cashflow modeling?
The con in my mind is that you might be able to evaluate a project, but you don’t gain the experience of looking at a business holistically. Infra investors might have trouble switching industries because of this. I’m in infra btw.
I think the notion is that historically, returns and scale have both been lower in infrastructure PE vs corporate, and generally speaking, the more capital deployed and the more outsized your returns are, the better the carry. However, in the last few years, we've seen more capital flock to infrastructure (GIP's fund IV is a massive $22bn, and they were doing 20% ish returns on their first two funds). There's also a lot of room for multiple expansion when it comes to assets just given that there's value in de-risking an asset in of itself in taking risk on during construction, so a more "PE-like" infrastructure investor has a lot of different strategies when it comes to creating value.
In general, because many strategies will be asset-oriented, there are less "MF-like" investors and many, many more MM players. Your typical MFs like Blackstone, Carlyle, etc have infrastructure funds, but they are MM sized. Actually, it is less so the household names but the pure infra players like ECP, GIP, MIRA, Brookfield, Stonepeak, iSquared, etc that have scale in the market. Comp (base+cash), WLB, professional growth, ability to transition into HFs/corporate are all largely the same vis a vis both infrastructure/traditional PE. Like I said originally, carry just based off AUM/returns will dictate larger comp spreads as one becomes more senior.
A positive in infrastructure PE that I have seen however, is that recruiting into infrastructure is more kind than traditional. Off-brand walks of line are appreciated, so in addition to bankers, there are some project finance folk, some tax equity folk, some strategic folk. With say, a Blackstone, it's unlikely you recruit unless you're a GS/MS/PJT/Centerview HPSYM type candidate right? There's less of a focus on prestige in infrastructure and also more people being able to make the transition to the buy-side at a later stage in their careers (can observe banker VPs jumping to the buy side, much less frequent in traditional frankly).
There are only a limited number of infrastructure assets that exist and the rate of new infrastructure asset growth is low. Compare to the wider opportunity set that private (and public company) targets for traditional PE.
Infra deals go through competitive auction process and lower cost of capital is usually the winner. Consortiums are more common due to larger check sizes. LMM and MM (to some extent) can have proprietary deals and more levers to pull.
As a result of limited targets, infrastructure players have expanded into “core plus” investments e.g. data centers. Traditional PE can take advantage of this reclassification of assets since infra players tend to value assets with lower return expectations.
Traditional PE in my opinion has more flexibility and higher earning potential.
However it is possible that infra players capital is genuinely needed to help build new projects as govs ability to invest is more limited now. So that could be rewarding if you like nation building projects.
Edit: reading comment below, agree this response is from a “core” infrastructure POV.
Not the poster here, but wanted to provide more color on what he said:
"as a result of limited targets....traditional PE can take advantage of this reclassification" - Sure. That goes both ways though, as there are many companies / portfolios that are "infra-lite" that would typically cater to industrial-focused PE investors, but that infra PE investors would have interest in as well (a developer of a back of the meter energy storage system, for instance).
"it is possible that infra players capital is genuinely needed to help build new projects as govs ability to invest is more limited"... agreed when it comes to core and core+ infra, but infra isn't just telecom, bridges and airports. Energy infra (so stuff relating to solar/water/HCs) and digital infra are hot (look at Sidewalk Infra or Generate Capital, for example) and have significant private investment from inception.
"rate of new infrastructure asset growth is low" I don't entirely disagree, but let's put this into perspective - outside of tech and healthcare, there are only so much ubiquitous trucking companies, lumber companies, recycling companies, etc. It is a bit of a misnomer IMO to slab that label on infra in a traditional vs infra discussion, but not say the same thing for what is most of traditional PE investment (again, outside of tech). There is simply very little "true" disruption/innovation when it comes to acquiring companies (or assets) of scale; in both jobs a large part of investing is figuring out when markets re-rate and how to create value with what's already in place
Lastly, frankly speaking, only pension funds, direct investment arms of insurance funds, strategics and yield-based infrastructure investors (GSAM, etc) regularly participate in auctions for assets. You will almost never see see a KKR Infra win an auction. Totally agree that lower cost of capital dictates auction winners (and merchant price forecasts for energy) but would say at least 50-70% of total asset sales don't leverage bankers/auctions and are proprietary-sourced. This is especially true for a lot of the EU energy players (EDPR, Enel, etc) - they are doing this all in-house. Very large platforms however, just given how scarce they are, do regularly transact via auctions though (First Reserve / Terra-Gen)
On the rate of new infra asset growth point, if you think about infra in the traditional sense of transport, power and whatnot, this is somewhat true but even then I'd disagree to some extent, having seen infra funds push the boundaries of the term 'infra' by going after unconventional targets and labeling them as infra (e.g. GIP/Signature, ArcLight/Proterra, EQT / whatever cruise line they bought etc.). Energy/power alone has so many pieces to it that you have sufficient breadth of opportunities to look at (e.g. energy transition, hydrogen, storage, etc.). The way I see it, there is a vertical and horizontal expansion into what constitutes as 'essential assets / services' these days which helps the case for Infra funds targeting mid teen returns for investors.
I work in Infra PE in Europe and I can give you my opinion.
It really depends on the fund.
If you work in a pension plan, you will be looking at secure cash flows and doing big models just to value the dividends but you will not see a lot of add on acquisitions / growth strategies, etc.. - For me this is quite boring and I don't like that style..
On the other hand, working in an Infra fund like EQT, Antin etc. is quite similar to traditional PE. You will look to acquire potential add ons, expansion of the companies etc - For me this is what I like because you will be doing almost the same of PE but with more security in terms of cash flows, market conditions etc.
In the big infra funds and top Infra PEs (GIP, Antin etc.) you can expect similar comp to MF PE.
Ut odit quia ea tempore. Laudantium rerum neque consequatur iusto.
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...