Q&A - Infrastructure PE & IBD

juststop.'s picture
Rank: Orangutan | 364

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 (116)

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

    • 1
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

    • 3
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.

    • 3
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?

But who's to say what's fair to say and what not to say? Let's ask Dr. Dre
    • 1
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

    • 1
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?

    • 1
Jan 21, 2020

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

    • 1
  • 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

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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.

    • 1
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.

    • 5
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

    • 2
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

Fixed-life fund - a fund primarily makes money earning management fees and carry. You care about raising funds, deploying funds quickly / within the investment time period in the LPA, and exiting at big multiples to earn carry. You obviously want quality assets, but there's a balance to be struck with quality v. what's available when you must deploy. The culture is more PE-like. I liked some of the cyclicality of the business (natural ebbs and flows so you can take vacation). I disliked not always caring about trying to do what's best for the company or running out of time to execute business plans.

Pension / sovereign wealth - there's limited pressure or desire to sell and you're not trying to earn fees or carry. Your comp is based on the yield from the assets, so there's focus on deploying pensioner money in good assets when it makes sense. Pensions have deployment targets, but I find it's ok to not meet the target if the investment teams feel it's really not a good market. Pensions also tend to have lower costs of capital. You have to consider your deal IRR, how it will affect the makeup of the whole infra portfolio, and how it compares to the pension liabilities. Is this deal good for pensions? is a constant question. The culture can be more thoughtful and creative. At a pension, there are no ebbs and flows. When you're not on a deal, you need to be actively working on your portfolio companies. Because you're always adding assets and never really selling, your asset management portfolio is growing and they usually don't add people fast enough. I loved and hated the asset management. I liked being boots on the ground at the companies doing more creative problem solving (renegotiating PPAs, contract renegotiations with governments, working with a utility to decide what type of new generation to build, lifecycle capex planning). If I had seen a path to, I would have been interested to stay at the pension and only do asset management. Dislikes are the never-ending onslaught of asset management, even when on a deal (I pulled all of my real all nighters at the pension and not at the fund or banking, often times many days consecutively) and pensions can be quite bureacratic and bloated at the top, so it can make seeing a path to progress challenging.

    • 3
  • Analyst 2 in IB - Ind
Feb 4, 2020

OP - thanks for this. As someone coming from Infra background in Asia this is really helpful to understand what's happening worldwide.
Thoughts on funds that pursue "value-added" strategies within the sector? I think you mentioned one example above (take private of Parques Reunidos if i'm not wrong); obviously I understand there are mixed views on this unconventional approach. However with valuation of core assets reaching insane levels as competition gets intense (+ Asian investors devouring assets overseas) and LPs increasingly building direct investment teams, "value-added" seems to be one of few areas where GPs can still aim for decent returns. My view is that this approach could be well positioned as "mezz" between traditional buy-out PE and core/core plus infra if that makes sense. Curious to hear about your take on this.

Feb 4, 2020

For sure, I don't know of many big name pure value add play funds, but everyone is definitely dabbling in that risk spectrum for the reasons you describe.

I started off my career doing availability payment toll roads and my last direct deal at the pension was aircraft leasing, so I think that's a good indicator of where the infra market is headed.

I also think there will be a valuation reset at some point, as the market can't go on like this. Interesting to see who still pursues value add versus coming back to more core/core plus

Another consideration is LPs-- at my current fund, we've been hit with some LPs who think our returns are too high, as we've done some value add deals plus some general outperformance. They see it as increased risk over traditional infra. And if your risk proposition isn't what they expected, they might as well move their money to traditional buyouts.

    • 2
Mar 1, 2020

I am an MBA student and am looking for some financial modelling courses for infrastructure (especially 3Ps), I know the good ones but they are all very expensive and are meant for corporates. Do you know any cheaper one to help me just get my foot in the door (and look good on the resume)?

Mar 21, 2020

I never saw anything like that when I was recruiting or from any candidates I've interviewed. Most of those programs are just the big corporate ones from like Corrality, etc. maybe someone else on here has seen something

Mar 24, 2020

Hi,

Most of the best courses are paid... if you want to go down the paid route I would recommend either Corality's Advanced Project Finance Modelling course or perhaps a paid course from a specialist shop. Otherwise you can find some nice free materials online via Corality /F1F9.

The below link is a very useful resource too as they provide an example model, videos, and a presentation that explains the modelling specifics (and best practices) alongside the Project Finance essentials. Honestly if you follow through this course start to finish you'll probably know 80% of what you need to know to hit the ground running in my opinion. They also include techniques that even many experienced modelers haven't mastered, things like utilizing VBA User Defined Functions (UDFs) to solve circular references (for things like interest during construction and DSRA modelling), opposed to using iterative calculations, or annoying copy-paste macros that kill the model's ability to run sensitivities dynamically.

http://edbodmer.com/project-finance-exercises/a-z-...
I would also recommend this free e-book from F1F9 on model optimization (this is up their with the quality of the most expensive paid courses). Also check out some of the other free ebooks on their website!

https://www.f1f9.com/resources/essential-model-opt...
Funnily enough, the main way I learned to model PPP / Infra assets was through the interview process itself. Pretty much every Equity Investor / PE fund will require you to sit a modelling test as part of their recruitment process, if you can get your hands on some of these tests you can practice building out simple models from scratch and learn on the go! Please feel free to give me a PM and I can share some materials with you. Including a modelling test I built myself for recruitment purposes.

    • 1
Mar 24, 2020

Any of these things would be good for an entry level analyst -- it'll show you know the concepts. The Bodmer VBA stuff (at least in US clean energy) would never be entertained outside of an equity model -- no other counterparty is going to take the time to understand that and no auditor is going to start trying to tie out VBA code.

    • 1
Mar 15, 2020

Thanks Op for offering to help, which path do you think is better(easier) for exits to infra pe or buy side private debt teams: an infra coverage team in IBD or a principal credit b/s investing team at a BB?

Mar 21, 2020

Def infra coverage team. Even if it's debt or equity investing, understanding the infra fundamentals is key. Capital structure products can be learned across sectors, so infra experience is more scarce/valuable

  • Analyst 1 in IB-M&A
Mar 24, 2020

How is Infra PE faring in the current market downturn? On one side, lots of investors will probably try to put their money into safer assets like Infra but I'm sure if the quarantine continues for longer, transportation revenue will take a hit along with power and utilies with closed offices and shops.

Mar 28, 2020

Transport can take a hit but I wouldn't say it's a given.

If you've got a road who's traffic primarily takes people from the suburbs to jobs downtown, absolutely they're obliterated. If you have a road whose primary traffic is delivery trucks transporting from logistic centers to housing, I bet you those are up and doing quite well. Likewise, ports and rail volumes have maintained steady, especially as China comes back up. Traffic mix is key.

Why would a utility suffer? Are people going to stop using electricity, water, etc? No. Public equities are not a good indicator of infrastructure performance and I bet you more take privates are coming up, since most pure infrastructure investors see a good discount. The biggest driving factor for a utility will always be the regulator.

Infrastructure is meant to sit somewhere above debt but below buyout traditional PE, risk-wise; less correlation to GDP and an inflation hedge but still potential for some outperformance.

    • 3
Mar 24, 2020

Curious how skills from one area of infra translate to another, and how your teams are setup. I'm on the buyside for renewable energy in the US, but we focus on really weird/complicated markets so its a little more esoteric than the utility scale 5% CoC situations.

Do most of the principles of an EPC contract or bridging C to P debt in one space easily translate to another (e.g. solar construction thinking on a telecom or light rail deal/etc?)

Also curious how a more generalist infra fund would view someone who's gone 10 miles deep in a complicated niche area/market regarding building/managing an underwrite and executing on it, but only an inch wide on the breadth of investments if you have any comment there.

Lastly, is the low pay reputation at Macquarie the same in the principal investments side as opposed to sell side?

Mar 25, 2020

Re the Macquarie question, I had an offer for from them as an Analyst 2 in their Banking IPP team (infra project & principal)... The base was market leading, hard to say for the bonus but I'm told the infra team does better than all the other desks bonus wise... I imagine MIRA would pay more that the banking IPP team which focuses mostly on M&A with some principal investments.

Mar 28, 2020

On the banking side, infra is one of the best performers so infra always does well relative to other areas of the bank. All in will still be below market, though, but there should be trade offs (at least back in my day) of work/life balance and less hierarchy/bureaucracy. Exit opps from Macquarie are also always solid.

MIRA pays market for MM PE. Banking market v. PE market are different games.

    • 1
Mar 25, 2020

Hi - think I PMed you a while ago re: renewables PE recruiting, was very helpful.

Curious about your thought process in going from renewables to a more generalist fund and what you mean by "weird/complicated markets", as I've drilled down a little more into what I want to do next and it seems close to what you're currently working in.

Array

Mar 27, 2020

Right on, glad it was helpful.

We're at a point where we've executed really well on a single strategy the last 2 years, and there are opportunities internally to expand our scope if there is a good opportunity in other types of assets beyond solar/solar + storage. I don't speak to a lot of folks outside of solar, so I was curious if there were a lot of similarities between other types of assets and if the skills sets still mostly apply.

We pick riskier markets in solar than most folks would associate with traditional solar (PPA-based utility scale). Community solar is really interesting, really complex, and an pretty awesome area return-wise if you know how to play well with that sort of stuff and nail an underwrite. It also tends to be semi-merchant in a lot of areas, so there has to be a much more refined sense of what rate tariffs will look like over the next 20-30 years especially if you're going to try to sell your view to debt.

Mar 28, 2020

Nobody wants to a utility-scale renewables deal, trust me. They're boring and competitive. Everyone wants those esoteric deals you're doing because that's what gets your a higher IRR than 7%

There are a lot of transferable skills from one asset class to another, which is great. There's enough difference that you'll still feel like you're learning while not feeling totally over your skis. There's likely just different terminology for the same concept among asset classes.

You'll find your EPC contract knowledge is transferable to conventional power generation or utilities, as well as even roads or greenfirld light rail (although it'd be called a design-build or DB contract). You'll find construction debt in these spaces too, though a slightly different dynamic from renewables given these assets will be using much larger quantums.

Going deep is OK-- it will show you have the ability to go deep and won't get bored easily, which is crucial for infra. Even in a generalist fund, lets say you join and your first deal is telecom and the standard deal time is ~year, you'll just become a telecom expert in that year. Dedication and focus is always valuable. When I moved to fund from banking, I had to pitch how my super-niche experience in greenfield US roads was applicable to the broader infra space. You can spin it.

The fund side was always better than the IBD side, but both were lower than market. The banking side salaries are OK but bonuses will be low. The fund size is market now. You won't find outperformance to the market on comp, but you will solidly get market at the funds.

    • 2
Apr 19, 2020

Justop, thanks for your answer

Mar 26, 2020

Hello, thank you for doing this.

I'm currently interviewing for Infrastructure PE, what would you recommend to know in regards to infra specific technicals? - So far I've been trying to read as much as I can about the sector and the fund strategy but running into a bit of trouble with the technicals.

Would you recommend just sticking to the typical PF ratios and KPIs?

Array

Mar 28, 2020

Knowing the lingo is a good start and what specific KPIs are for infra assets. There's financial KPIs (EBITDA/TCF, margins, growth rates, etc) but the operational ones are just as important (traffic, load, capacity, volumes, tariff increases, capex).

Typical technical questions err towards the "how would you value a Starbucks in Times Sq" type. Examples:

  • How would you value a road/airport/gas pipeline?
  • If I have X asset in A country, how does its risk and returns compares to Y asset in B country?

Then there is likely 1-2 model tests/case studies, depending on the fund. Key things I always see people mess up in the models are 1. application of inflation, 2. periodicity, 3. debt sculpting, 4. high-level tax (the number of times I've seen tax as positive number added to the FCF line instead of treated as an expense is too many)

    • 1
  • Intern in IB-M&A
Apr 14, 2020

jesus christ periodicity i remember that shit 5 tabs of financials (monthly) to be rolled up into a further 5 tabs of same financials (quarterly) then another 5 tabs of financials (annual)

absolute nightmare

macros..... everywhere......

Mar 28, 2020

I'm working as a credit research analyst (3yrs) for an asset manager. I follow investment grade utilities, midstream, E&Ps and REITs. We invest in their senior unsecured debt. the job is very stable and cushy but I feel like my learning curve is flattening out (as well as pay).

How would you approach making a transition to roles at infra debt fund? Or are there other roles that I should consider, given my background? I've always wanted to move down the capital structure or be part of structuring process.

thanks for your time doing this!

Mar 28, 2020

It sounds like a credit fund move would be the easiest and you can always move to an equity or mezz fund later.

I don't think there's much of an approach you need to take here, as your background sounds like an easy fit. The one thing people might push on is your modelling ability, but I assume you're comfortable there. For most infra roles, recruiters and friends are the gate keepers so start reaching out to recruiters through LinkedIn and take your friends to coffee/drinks.

There's lots of interesting credit/mezz funds out there. Fund managers I can think of off the top of my head with an infra debt strategyright now are: ECP, Westbourne, GIP, Macquarie, Orion, etc.

    • 1
Apr 14, 2020

Thanks once again for doing this. Though most of this thread focuses on private equity/debt investors, do you know what is the perception of public investors in this space? Organizations like the World Bank, IFC, USDOT's TIFIA program, DFC (formerly OPIC), the European Investment Bank, etc.? Specifically:

  1. Is experience at a place like this valued by private investors? I would imagine it is at debt funds, project finance lenders, etc. but unsure about infra PE.
  2. Is there a higher chance of getting pigeon-holed at an organization like that? I know a lot of people choose to stay due to the stability and comp at the more senior levels (though it's way below market but probably much less stress).
    • 1
Apr 16, 2020

I think working at any of those places is very well respected. Used to work with a woman who was at the World Bank before switching to infra PE and met a woman at a networking event recently who was at the IFC doing infra projects before switching to industrials PE. TIFIA is such a complicated beast that for anyone who knows what it is, immediately respects you.

I can't speak to if pigeon-holing is real, but when I've looked at jobs like that, its personally something I've worried about. However, it seems moving in and out of organizations like that is common enough.

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Apr 14, 2020

Thanks for doing this! Been looking for some inside advice for ages.

I work in consulting doing technical DD and some model audit for renewables project finance and want to pivot to PE in a similar space - renewables, power, utilities, waste to energy, storage etc. I have an engineering background and previously worked in utilities, energy efficiency, and wastewater.

What can I do in the next 1-3 years (given a complete lack of IB/pure finance experience) to become a reasonable candidate for PE? Any particular PE shops that are open to a background like mine?

Apr 14, 2020

Obviously not OP but am looking at renewables investing firms - I've seen several associates with that background. Seems like some firms are exclusively ex-IB analysts for their associate pools, others have a good mix of your background, project finance, IB, people who worked at developers, etc.

Array

Apr 15, 2020

Thanks. Which firms are those?

Apr 16, 2020

Agree with you. Some places are just more flexible than other re: background.

Apr 16, 2020

Networking and brushing up on your technicals.

Something I'd consider in your role is asset management at a fund. It's something I've always been interested in. You're doing effectively what you do now but at a fund and are very hands on with strategy at the portfolio companies. That's real value creation.

Apr 16, 2020

OP - would you mind if I PMed you for career advice? Currently an analyst at an infrastructure investor in an unstructured program

Array

Apr 22, 2020

No problem

Apr 29, 2020

Hi,

Thanks for doing this! I have had two rounds of fairly technical interviews (regarding my past IB work ex) and a modelling test. I now have two interviews with the Principal and VP. This is a MM infra PE. Do you have any idea on what that can entail?

May 2, 2020

This is likely a mix of behaviorals and more conceptual technicals, such as talking through how you'd value a toll road/airport, etc, comparing the appropriate risk and return for two assets. Probably more discussion of your deals, too.

Jun 13, 2020

Hey,

Nice to have such a complete discussion on infra.

As an undergrad, what are the most important aspects of the infra industry to learn?

Jun 16, 2020

The first thing to get under your belt is the investment thesis for infra and why you specifically like infra, if that's the career path you want to explore. Start broad and work your way to honing in on the specifics (i.e. going from 'why infra' to 'why midstream').

Why are infrastructure's returns what they are (meaning, they're higher than debt but lower than traditional buyout PE-- why?)?

Once you identify what makes something infra (and also understand how that makes it different from other asset classes) then the next question is why do you like those?

Besides talking to people in the space and reading forums like this, academics have started trying to pin down what is infra and why is it appealing. Some places that have good basic materials to read through are EDHEC Infra (they are trying to compile data on private infra investments to help quantify performance benchmarks), NYU (Stern has a professor that studies infra as an investment class), Meketa (they've recently released an infra 101 white paper), and infra funds websites (doing a quick search on my own, JP Morgan, John Hancock are top ones to show up with published investment theses)

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Jun 15, 2020

Thanks for doing this. What is the recruiting process like for Infra PE for a first year IB analyst? In addition, what are some of the top funds and who are the major headhunters?

Array

Jun 16, 2020

Very few funds want a first year analyst. Most places won't take applicant without a minimum 2-3 years experience, unless its a fund that has an analyst program. Reason being is that these funds are very leanly staffed and don't have the resources to be super hands-on training someone. They want to hire someone who can hold their own when they join.

If you've done a year of IB, this is a great time to learn what you want to do and where you want to do it. Network in the space. Infra generally recruits on an as-needed basis so you shouldn't feel pressure to recruit [18] months in advance of a start date.

One of the best headhunters I've worked with a dedicated infra practice is OneSearch. However, most of my roles to date have been secured through my network, not headhunters.

In terms of "top funds," I think its a bit of an irrelevant question for infra. You can look up a league table. There are fund managers, pension funds, sovereign wealth funds, insurance companies etc directly investing infra. Spend time learning about the different business models here. The infra space can be quite fragmented, so just because someone has high AUM, doesn't make them " good" (someone can raise a large fund, putting them in the top of a league table, and perform horribly but it will take 5-10 years for them to get knocked off the league table based on AUM). Likewise, just because an infra fund has a prestige name, doesn't mean they are actually good infra investors (ex. Goldman Sachs infra funds have terrible returns)

Things to consider in your role (because for every option of these, there will be a prestigious investor in the space you can go work for): greenfield v. brownfield v. mix, equity check size ($1bn+, $500m-1bn, small cap), risk profile (core v. core plus v. value add v. opportunistic), geographic-focus vs. global mandate, sector focus or diversified

Once you have a better idea of what mix of things you're looking for, let's talk!

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Jun 16, 2020

Super helpful! Quick follow up. So is there no such thing as "on cycle" infra pe interviews? From my understanding for vanilla pe you have to be prepared/start preparing for headhunters and interviews as soon as you hit the desk. If a first year analyst is joining a group that covers infra do they participate in "on cycle" stuff at all?

Or are you saying its more of an unstructured process that takes place closer the end of your analyst years and it is mostly up to you to find opportunities?

Array

Jun 16, 2020

Funds have been actively fundraising, having reached close or having targets to reach. What are some of the fundraising trends you've seen, have you experienced funds that are unsuccessful in fundraising, and do you believe there is too much capital in the market and not enough projects?

Can you provide any insight into which funds are good infra investors and which have major red flags? Is it known in the industry which funds are not performing well, is it difficult to switch careers if you're at a fund that isn't performing well, and what is the career progression if you decide to join a fund that isn't performing well?

Thanks in advance.

    • 1
  • Prospect in IB-M&A
Jun 18, 2020

Thanks for the AMA!

I've got a question on screening through potential investments at a high level. What are the characteristics you look for first in infra vs what you might for traditional PE? E.g. are you verifying that cash flows are contracted and there's a quality asset base?

Jun 22, 2020

While I can't really speak to general PE underwriting as I've only done infra, I'm sure there are threads on WSO you can use to contrast to my answer.

  1. Contracts-- how contracted are revenues / volumes / opex / capex and for how long?
  2. Capex spend-- beyond any upfront proceeds, will this asset need any major maintenance or rehab, or expansion capex? Sometimes this can be contracted / mandated by the government
  3. What's the growth look like? This is sense checking the expected growth of the asset vs. macro indicators. You want growth to a point, but if your asset is growing by 5% every year into perpetuity and the larger macro environment is growing at 1% into perpetuity, something is off
  4. Downside protection in contracts / inflation protection / resiliency in macro environments-- all related to the points above
  5. Debt-- how levered are you now? Terms/rates? Refi risk? Ability for a div recap? Most infra businesses tend to be fairly highly levered
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Jun 23, 2020
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Aug 6, 2020
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Array

  • Analyst 1 in IB - Ind
Aug 6, 2020