Q&A - Infrastructure PE & IBD

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 (201)

Jan 16, 2020 - 4:48pm

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

  • 4
Jan 16, 2020 - 5:12pm

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 - 10:11pm

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

Jan 22, 2020 - 8:13am

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.

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Jan 16, 2020 - 5:41pm

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 - 10:22pm

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

Jan 16, 2020 - 6:45pm

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.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

  • 6
Jan 21, 2020 - 10:35pm

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

Jan 25, 2020 - 10:39pm

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?

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

Jan 17, 2020 - 1:17pm

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 - 12:14am

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 - 10:41pm

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

  • Analyst 1 in IB-M&A
Jan 21, 2020 - 11:09pm

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)

Jan 21, 2020 - 10:54pm

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

  • Analyst 2 in IB - Cov
Jan 18, 2020 - 4:08pm

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 24, 2020 - 8:01pm

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 - 9:21am

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

  • Prospect in IB-M&A
Jan 27, 2020 - 11:50am

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 - 2:15pm

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.

  • Intern in IB-M&A
Jan 28, 2020 - 2:40pm

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 - 4:46pm

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?

  • Intern in IB-M&A
Jan 28, 2020 - 5:21pm

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 - 5:26pm

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.

Jan 28, 2020 - 5:15pm

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 - 5:33pm

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.

Jan 29, 2020 - 2:29pm

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 - 5:03pm

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.

  • Analyst 2 in IB - Cov
Feb 4, 2020 - 10:04am

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 - 11:58am

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.

Mar 1, 2020 - 4:47pm

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)?

Sep 29, 2020 - 9:50am

On the topic of modeling, there seems to be some debate about the "FAST" (flexible, appropriate, structured, transparent) modeling practice/theory. Is this something you've come across and have an opinion on? What would be best for someone trying to learn and get exposure?

Just found out they also have an actual site: https://www.fast-standard.org/the-fast-standard/

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

  • 1
Mar 24, 2020 - 9:11am

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-project-finace-on-lin…

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-optimisation

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.

Mar 24, 2020 - 11:11pm

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.

  • Analyst 1 in IB-M&A
Mar 24, 2020 - 1:51pm

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 - 9:19am

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.

Mar 24, 2020 - 11:10pm

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 - 4:46am

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 - 10:48am

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.

Mar 25, 2020 - 6:19pm

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 - 1:56pm

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 - 10:44am

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.

Mar 26, 2020 - 2:06pm

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 - 11:00am

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)

  • Intern in IB-M&A
Apr 14, 2020 - 1:58pm

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 - 10:06am

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 - 11:06am

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.

Apr 14, 2020 - 10:28am

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).

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

  • 3
Apr 16, 2020 - 9:55am

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.

Apr 14, 2020 - 6:58pm

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 - 9:28pm

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 16, 2020 - 11:51am

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

Array

Apr 29, 2020 - 2:42pm

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?

Jun 16, 2020 - 2:54pm

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)

Jun 15, 2020 - 11:09pm

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 - 3:16pm

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!

Jun 16, 2020 - 4:45pm

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
  • 1
Jun 16, 2020 - 10:28pm

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.

  • Prospect in IB-M&A
Jun 18, 2020 - 7:41pm

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 - 11:52am

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
Jun 23, 2020 - 12:00am

Thanks a lot for doing this! I'm currently in a situation where I've received an offer from one of the bigger core infra PE players (e.g. Brookfield Infra, GIP etc) and liked the team a lot. I quite like infra as a sector but as a junior I've always wanted to keep my options open and wanted to see what the Corp PE hype is all about. I'm just debating whether to take this offer or continue to work at the bank I'm currently at which I'll be doing industrials generalist work.

I think the infra PE opportunity definitely gives me better and more challenging/intellectually stimulating work, but would that pigeonhole me into a niche skill set and hurt my chances of potentially switching to corporate/traditional PE if that's what I want a few years down the line? Have you seen such moves or do people who work at Infra PE are generally well thought through and the move is irrelevant for most?

Any thoughts or inputs are highly appreciated!

Jun 23, 2020 - 1:53pm

I think it's easy to make a move up until a couple years into VP. There's overlap in the core skill sets. The only thing that could make it "niche" is if the team you're joining is a sector specialist. I personally prefer generalist programs for my own intellectual curiosity but also the analysis needed to be a toll roads expert is very different than PE businesses that can masquerade as infra like asset leasing / some telecom / energy / etc. It keeps my skills flexible. No one thinks poorly of anyone for wanting to try something different. And the "well thought through"-ness of Infra PE employees is not better or worse than any other sector; you've got people who are super into it and some people who are there to just pay the bills and have no issues switching.

That said, an MBA is a career reset button in my mind. If I decide I want to pivot away from infra, sure I'll try to recruit on my own and through my network and see how it goes, but I'm realistic an MBA is a very powerful tool to hit a hard stop. A lot of good / interesting jobs require an MBA anyways.

Jun 23, 2020 - 10:44pm

many thanks! that makes a lot of sense. I'm based out of Asia so I think things might be more fluid also compared to "structured-ness" of US recruiting. there are some infra funds that uses their strategy as a marketing term and really venture into core++/PE domain, while the fund I might be joining is very core/core+. I'll give that some more thoughts.

thanks again for doing this! really appreciate it.

Aug 6, 2020 - 4:45pm

Thanks for the super insightful responses so far.

Given your coverage of the Americas, could you provide some thoughts on the recent performance of MM funds in the space (think Alinda, AIMPERA, AMP; just to name a few)?

How might exit opps look like coming out of places like this? Is the MM space a good one to enter right now or should one be solely focused on the bigger GPs (GIP, BIP, MIRA, etc.)?

And out of curiosity, could you shed some light on GIP's recruiting process?

Array

  • 1
Aug 12, 2020 - 10:26am

Exit opps out of MM vs. larger funds I think are all pretty good. They investment process across the firms will generally be the same and you'll learn the same skills. I think the difference is at a larger place, you can tend to have larger deal teams and your role on that deal will be more narrow and you'll be expected to go deeper. On the flipside, most MM shops tend to be smaller so you'll have 3-4 workstreams you'll need to lead but obviously may rely on advisors more as you don't have time to go as deep.

All I know right now about GIP's recruiting is that they are ALWAYS recruiting and they take people in with a wide variety of infra backgrounds. In terms of the process, I'll need to ask around. I've never interviewed with them as I wasn't interested in the more sweat shop-y culture they breed. That said, almost everyone there is super smart and I've heard from a partner there that there's carry down to the associate level, so I think that keeps people pretty motivated despite their longer hours.

  • Analyst 1 in IB - Cov
Aug 6, 2020 - 6:20pm

Have a question for you - similar profile and also have your exact GPA. Did you find that that your GPA was a barrier in talking with headhunters/firms? Do you have your GPA on your resume? How did you mitigate conversations around it?

Thanks!!

Aug 12, 2020 - 10:19am

My GPA definitely didn't help me getting through the resume filters so I had to get aggressive with networking.

I ended up getting my IBD role after getting rejected from on campus recruiting. I reached out to the recruiter to say I was disappointed by that outcome but continued to be interested. I ended up getting a spot in their diversity and non-target school cycle, which occurs after all their target school on-campus stuff.

After a lot of rejection, I learned to have no shame when it came to recruiting. The worst they can say is no, so doesn't hurt to ask.

I think my GPA is still on my resume but I have enough experience now that most don't care about it.

Aug 17, 2020 - 12:47pm

Giving this a bit more thought, I'd also add that my experience with not getting through the resume filters for OCR was a similar hurdle in getting headhunters to put my resume through. But, that was mitigated over time with putting more deals on my resume. I think also specifically targeting infra-only roles helped, too, as it is more niche.

When I would get the interview but the GPA question came up, I point to my leadership positions in extracurriculars and note that I have a more well rounded, balanced profile. You can also mention a major-specific GPA, if you know it and its better than the overall.

BUT, overall, a mediocre GPA is a short term hurdle. Just kill it wherever you are currently and that will matter more soon enough.

  • Analyst 2 in PE - Other
Oct 13, 2020 - 11:50am

Hi juststop - do you have any advice on preparing for a MIRA associate interview or knowledge of the process? Anything to know in advance? Thanks!

Oct 13, 2020 - 12:15pm

I don't think there's any magic to it or idiosyncrasies with MIRA interviews vs. other infra PE shops.  I'm assuming you're already in the infra space for my answers below so let me know if that's wrong:  

Read up on their deals in Inframation.  The infra technicals covered in this thread are good questions to prep.  Maybe refresh some brain teasers.  Know your deals and if they're non-infra, have a think through the infra investment characteristics and how some of your deals may have some overlap in the investment thesis with infra.  Be prepared for the model test / case study.  If you've done infra modelling before it will be a breeze, but I've heard some of the concepts covered by the test have thrown people fore a loop that don't have an infra background (i.e. debt sculpting, construction vs. operations modelling). Have thoughtful questions prepared to ask and keep in mind you're interviewing them as much as they're interviewing you.  Most importantly (and sometimes easier to say than do), just relax in the interview and be yourself. 

  • Analyst 2 in PE - Other
Oct 27, 2020 - 10:54pm

Thanks, this was really helpful! On the modeling test - I do currently work in infra but tend to make (sometimes significant) modifications to our template model due to sector and granularity (macros, tax equity, etc are above my skillset to do from scratch, though I do understand the inputs/considerations for TE structuring).

I can do a cash flow/high-level greenfield non-TE model quickly (construction schedule + financing, modeling down to EBITDA more granularly, then doing debt sizing/sculpting of the takeout and calculating equity returns off of CFAD assuming purchase at NTP or COD) - is this likely what I'll be tested on? If I have to add in a full IS, B/S and additional schedules (NWC, incremental depreciation, and retained earnings, I'm guessing), how fast should I be able to do that?

Thanks in advance and apologies for all the questions!

Oct 15, 2020 - 7:34pm

Thanks for offering this! I am currently working infrastructure principal investment. I am wondering how do the infra team at mega funds conduct recruitment, i.e. in-house or via HH? A few HH has reached out to me but all for opportunities with very small funds. Thanks!

Oct 16, 2020 - 10:06am

I've definitely received MF interviews through headhunters.  Headhunters can be used for different things by bigger shops, from running and scheduling everything to just sourcing resumes for a fund but I think through and through a HH is the first gatekeeper. 

I think infra funds, MFs included, typically don't recruit on cycles, especially for laterals, which is what it sounds like you are.  This likely explains why it may have been a while since you're seen what you're looking for.  

With whatever recruiters you're in conversation with, you should feel fine telling them specifically what you're after.  It saves both of you time in the long run.  OneSearch is one of better connected infra recruiters, so reach out to them on LinkedIn if you're not already chatting with them.  

Oct 18, 2020 - 5:49am

Thank you. This is very helpful to know. In terms of infra PE modelling test, are there any tips for preparation? The modelling I am doing in my daily job is project finance modelling so just concerned that the infra modelling test could be more similar to other typical PE recruitment instead of focusing on project finance modelling. Thanks!

Oct 19, 2020 - 9:12am

I typically think of the principles behind project finance and infrastructure as one in the same.  Infrastructure, by its nature for most companies, is project finance.  The nuances between project finance vs. infra PE aren't going to come out in a modelling test in an interview.  If you think you're capable of modelling at a high level some of the concepts discussed above in the thread for infra model tests, you're set.  

Typical PE model tests are more in the paper LBO space / accretion/dilution / multiples & comps analysis.  Infra model tests aren't like that unless you're interviewing with a mega fund or for a generalist PE & infra program.  

  • Intern in IB - Gen
Nov 15, 2020 - 2:11am

Hi, thank you for doing this! I am a college student studying in the US and will be joining a US BB in the Hong Kong office next year. I will be doing structured finance and project finance covering the whole APAC area, and I have worries about my future exits. As you know there are not many local infra buy-sides in HK/SG, with only few funds have offices here since most funds invest in Asia from their NY or Australia office. I plan is to stay at my team for 2-3 years and move to buy-side, but I worry that there might not be many positions available, since I cannot apply to US jobs without a visa. What would you recommend to me in my situation given that my goal is moving into infra funds? Should I consider moving into coverage and then try to also recruit for generalist PE just to increase my chances of going into any PE? Should I do an MBA and try to find a position in the US? Thank you! 

Nov 16, 2020 - 10:46am

Congrats on your job!   

So, I think my first piece of advice is its a bit early to worry about the buyside when you're not even working in banking yet.  It's really obvious when you work with an analyst who's not very present and only thinking about how they can exit.  While there may be some pressure right when you join to recruit "on-cycle," many places, particularly infra, don't use a cycle.  We recruit based on need.  Recruiting when you're not ready is also a great way to burn bridges with recruiters (I can speak from experience on this one when I tried recruiting "on cycle" and had no idea what I was doing and a recruiter told me in the kindest way possible I was a hot mess)

While you're right, there aren't many HK or SG based funds, but every place I've worked has had a substantial APAC presence through a HK or SG office.  Not that many places are doing just an AUS office anymore because with travel (at least before when travel was a thing), time zones, and how large the opportunity set is in Asia, its too hard to do AUS and Asia out of just a Sydney office.  

I think also focusing on only funds may hurt you more than help.  The big infra players in APAC are Asian pensions and insurance companies.  

Being in a project finance role at BB will lend itself well to pivot into an infra investing role.  But it sounds like you'd benefit from focusing on the task at hand of your IBD role and spend more time learning about the opportunity set.  

  • Intern in IB - Gen
Nov 16, 2020 - 12:07pm

Thank you for the advice! I am definitely thinking about this too early now, and I will focus on preparing for my incoming ibd role. 

Another question: all analysts on my team are cross-staffed between project finance and securitization (auto loan, credit card loan, abs stuff), but senior bankers only work on their own staff. I think this is only in HK office as our NY team has separate analysts. Can you comment on whether this happens often in other IBD groups? and whether this should help or hurt me as a candidate? What should I prepare for both business lines as an incoming analyst now? 

This whole Q&A has been very insightful to me so thank you again! 

Nov 17, 2020 - 8:38pm

The information on this thread has been incredibly helpful - thank you for doing this. I have a couple of questions that I think have not yet been mentioned:

- Value creation: In buyout PE, my understanding is that there is a focus on the finding avenues to be hands on and 'create value'. These broadly fall under the spheres of either improving operational efficiency or optimising capital structure. Understand that infra PE investors are often investing in the asset class for different reasons than a buyout fund (e.g. diversification / protected down-side etc.), but can you comment on the typical avenues of value creation for an infra PE investor? Presume there is a decent overlap (between buyout and infra PE), but are there any specific strategies that come to mind within particular sub-sectors?

- Portfolio management: Somewhat of a follow on from the previous question, but how hands-on are funds typically with their portfolio management? I have read that Ardian for example tries to market itself as an infra investor that focuses on the 'operational' aspect, and they claim to be very hands on with their investments. Can't say I know for sure, but I'd imagine some of the pension funds would be more passive in their approach.

- European market: Do you have any insight into the key players in the European market? I have read that Ardian and EQT are reasonably active, but unclear on who else would be in the mix.  

Nov 19, 2020 - 12:23pm

It depends on the risk spectrum of the asset & fund.  If it's a core or super core fund, it's going to be more passive investing most likely.  If it's in the value add / opportunistic bucket, then you can expect management of the PortCo to be pretty well integrated as these companies often have roll up strategies so you'll need the help of your sponsor to buy in on all of that M&A.  I also find infra assets are often priced to perfection, so even if you have an asset that should be passive, you may be quite hands on with it to ensure your return.  I've seen this in particular with utilities, which theoretically should be passive cash machines, but end up being a lot of work.  I found my time being almost 50% asset management, 50% deals.  At the junior and mid levels, it can take the form of helping management run valuation scenarios for projects, working with the FP&A team on optimizing reporting, or helping the PortCo raise debt (or in some instances you're raising debt for yourself at the HoldCo without management).  

Every fund I believe markets themselves as "hands on" but it would look quite bad if you tried to raise money saying you were hands off!  I think if anything, some pensions can be MORE hands on than funds.  If you're in a fund, you have a 10 year life.  Often times, you're not trying to create a whole lot of long lasting value but enough value such that the business doesn't erode and you can get a healthy exit.  At a pension who does direct investing (vs. a pension that just invests in funds so they leave the hard work to the GPs), you need to take the perspective that you own that for life and need to be constantly creating value for yourself.  

In terms of Europe, the big ones that come to mind that are active in all of Europe are EQT, Macquarie, Antin, 3i, Equitix, DIF.  The direct investing pensions are quite active too (CPPIB, OMERS, PGGM, etc).  While Ardian is active, I think of them more as a global player or more of an investor in France and French-speaking jurisdictions.  There are a lot of infra shops that do single country or a handful of countries only too, such as F2i.  

  • Analyst 3+ in IB - Cov
Nov 26, 2020 - 6:06am

Read through all your replies and noting nuances amongst greenfield vs brownfield, average check size, etc to indicate there is no cut and dry "league table" that there may be for other sectors/jobs. However, with that being said, assuming you were looking to dedicate 4-5 years to getting the most amount of money and the absolute best of experience - in your view, would you see the monoliths being superior re: GIP/Brookfield/MIRA along with your EQTs/ECPs, etc? What about the infra arms of MFs as well? Would you say there is superior lateral mobility at the bigger names re: how often do you actually see AUM climbing (re: someone going from LMM/MM to MF)? 

Perhaps this is naive - but with infrastructure, assuming you're pursuing PE-like returns (so not core infrastructure sub-10%), are you simply not better served being at a place with bigger AUM for more carry? Obviously factors like upward mobility and when you're actually eligible to receive carry matters, but all else being equal?  

Dec 7, 2020 - 5:05pm

In order to truly maximize your comp regardless of work/life balance, etc, I'd go to a fund that either 1. pays carry or 2. pays all cash comp with a short LTIP vesting cycle.  The trick with carry comp is are you getting paid from a general pool of carry comp or are you assigned a couple points of carry from a specific fund?  

IDK Brookfield's comp, but I know GIP pays carry to junior folks from a general pool.  MIRA pays carry to MDs and up only and it's fund specific.  So if you join MIRA today as an MD and are paid MIP V carry, you're not seeing a pay day for ~10 years.  MM and boutique funds are going to be more likely to do carry grants for junior/mid level folks.  

MFs aren't going to pay anyone carry under a certain level, similar to MIRA.  You may not even get access to the staff feeders either, where you can invest your own money in the funds.  Again, MMs and boutique funds will be better about this.  The fund I'm at now is a new entrant in infra and I'm getting carry.  I interviewed at a newer infra fund for an analyst role several years ago and I was also offered carry as part of my comp.  Antin offers carry at the junior/mid levels.  

Ontario-based pensions (and possibly federal CAN pensions too) offer above-market cash comp packages with short vesting (2-3 years) on the LTIP.  Ontario deregulated pension employee comp to help get better performance by getting better talent.  In contrast, similar to the US pensions, places like British Columbia or Alberta have regulated caps on pay and require public disclosure.  

If your experience is good, you can go up in AUM.  I have several colleagues who've done it.  I don't think a lot of people in infra think in these terms though.  Most people who are trying to go from a MM shop to a MF are doing it for some other end (i.e. to help get into a better B-school or to try to get into reg. PE).  Most people in infra aren't as hardcode brand whores as PE because of the things you discuss at the start of your post (i.e. not straightforward league tables).  A lot of the big name brands who do infra now (say BX or GS or MS) aren't considered to be doing good deals.  

I think the carry structure matters.  If you're paid carry out a general pool and depending on how they define your carry comp (i.e. if they're always describing it in % terms vs. capping you by a $ amt in some way), then yeah, AUM will be a great driver.  But I think most people pay carry based on a specific fund, so you'd want to be at a place that 1. pays carry 2. agrees to pay you a fixed % per fund (call it [.2%] per fund) and 3. has funds that are growing in size.  So getting carry at an EQT / Stonepeak / I Squared will be way more lucrative than say carry in MIRA, where MIRA doesn't increase their fund over fund size by much intentionally.  

  • Analyst 3+ in IB - Cov
Dec 7, 2020 - 6:51pm

Absurdly well written and thoughtful post. Thank you so much!

Does GIP actually pay carry to juniors? Based on your post they meet all 3 criteria then right? Pays carry, gives you a fixed % per fund, and each fund has grown with time

Dec 15, 2020 - 6:43pm

Hi!

I'd love to get your thoughts on a potential non-traditional path into infrastructure. I'm a current finance PhD student at a US business school that's interested in moving to an infrastructure fund. My research is focused on household finance impacts of transportation infrastructure. I'm not looking to continue on as a researcher in academia and I'm keen on working somewhere where I have a strong intrinsic motivation to specialize in. I personally enjoy the details of how infrastructure is financed, particularly the involvement with government and potential complementarities with real estate finance. Any suggestions as to how someone in my position should approach infrastructure funds in general? I went straight from undergrad into a PhD and thus don't have prior experience working in banking.

Dec 16, 2020 - 9:53am

Hi there, 

This one's trickier because of the no work experience.  I think a lot of firms view education as more of a check the box exercise versus a real value add because you just learn so much on the job and a lot of what we do just isn't very academic.  That being said, the reason banks or funds will hire a lot of people out of the military is because even though the relevant work experience isn't there, there's a lot of maturity there that a 22yo fresh out of undergrad likely doesn't have.  

I've seen two typical paths for someone with similar desires as yours: 

1. get into a banking program and join as an associate through their typical MBA recruiting cycle

2. find a fund that has an analyst program, join as an analyst and make it clear that if you perform, you expect to be promoted early 

Another option is getting involved in infra deals but not through the usual fund or banking path.  Sounds like your experience would lend itself well to working at traffic & revenue advisors, where you'd be getting exposure to both private deals as well as government projects.  There's also public finance advisor shops that may give you more credit re: title (the big 4 accounting firms all have these infra advisory groups, PFI is another standalone shop)

Part of the reason why I'm suggesting more advisory/banking roles over a fund is I don't see a reason as to why you want to be in a fund specifically and an advisory group or bank is going to be doing more financings than you'd do at a fund too.  If you're dead set on going straight into a fund, you'll need to prep for it as an undergrad who's recruiting straight into a fund too, so be prepared to discuss why you think you're prepared for buyside first instead of doing banking and have a firm grasp on why infra as an investment class and how your experience is going to make you a good investor.  

Another reason to consider advisory as a first stop is advisory/banking is generally more flexible in what experience/background they'll take.  It may be a path of least resistance.  

Dec 16, 2020 - 11:58am

Thank you for taking the time to respond, I appreciate your feedback!

Just a few follow up questions that I feel would really help me in learning a bit more about infrastructure funds. One reason I'm drawn to infrastructure and buyside is the potential to be heavily involved with the operations side of infrastructure. For example, I'm particularly fascinated by CDPQ's involvement in the REM projects in Montreal. CDPQ is essentially doing what was previously in-house government processes in planning, designing, building, financing, operating and owning public transportation infrastructure, in addition to stimulating (and getting a piece of) real estate investment to sites nearby. Is this type of infrastructure investment common? Or is CDPQ's unique relationship with the Quebec government an atypical scenario? Is my view regarding infrastructure funds involvement with operational details accurate in any way?

  • Analyst 3+ in IB - Cov
Dec 17, 2020 - 2:41am

Every intro / first round focuses on your deal experience and going over what you've learned and what you understand about the market (from an investment standpoint, where you would choose to deploy capital perhaps, with actual asset types and platform examples) so they can see how transferrable your skill-set is. And afterward, I would say without actual work experience, I genuinely do not think it is possible to do an LBO / project model test & then investment thesis walk / break-down afterward with 2-3 VPs / Senior Associates grilling you. Even relatively "small" like formatting (color usage, flow of the model, etc) are critiqued - no room for mistakes. And these are the things you learn in banking. 

Ppl in banking are working constantly over the span of 1-2 years to ideally hone this "skillset" of modelling, seeing the day-to-day transaction structure of various deals, learning through osmosis from hearing VPs+ talk (internally and to clients). Even if you assume that only 50% of the average work week is productive (that's 80 hours * 0.5 * 52 * 2 = 4000 hours on this subject alone). This is not something that you can make up for via reading textbooks or research from a more academic route IMO, A big part of that also is because 1-2 years of investment banking at a top group shows on paper at the very minimum a proven ability to grind and be tenacious when things are rough - buy-side teams are often very small, and everyone needs to be 100-% value add. There is no time to develop someone's modelling/financial analysis skill either - you're expected to have that coming in. For these reasons 95%+ of the buy-side landscape are ex-bankers, even in infra

Dec 20, 2020 - 7:21pm

Do you think an oil and gas analyst has a decent shot at infra? I know a lot of the infra funds have midstream assets, but not sure how to approach this from a recruiting standpoint.

Do we wait for HHs to contact us energy peeps for infra PE or reach out to midstream infra directly? Thanks

  • Associate 1 in IB - Cov
Dec 21, 2020 - 4:47am

I would say the majority of hires for infra are still O&G and P&U based within conventional energy so wouldn't be too worried. Just standard PE recruiting via HHs

Dec 21, 2020 - 10:11am

Agree with the prior reply-- absolutely.  While infra has been growing and banks cover it more, a lot of places still don't have dedicated infra teams so you see a lot of hires from Nat Resources or O&G IBD.  

You can go about it either way-- reach out to HHs saying you're explicitly interested in infra funds or you can also apply directly / network into a role.  

  • Associate 1 in IB - Cov
Mar 16, 2021 - 5:38am

Yes, very much so. This is true in all cities but especially places in Houston are still mid-transition and therefore a) need people still smart in the space given existing PortCo companies, D2D management and eventual exits, and b) there will be good deep value plays that any energy fund should be interested in at the right price. I think greenfield upstream deals are going to be very, very rare though.

If you're in the O&G space right now, I think you're more than fine. If you're prospectively entering it, I think you're still fine. It will be more dangerous to be in the space 5+ years from now as a junior though

Mar 15, 2021 - 10:57am

I think the jump from a debt team to infra PE is hard.  

Seems like going from debt to infra IBD to a fund is going to be a lot easier. 

The only exceptions to this would be if you're joining an infra credit fund (there's LOTS coming up now from reputable brands) or a lot of infra equity funds have a debt portfolio mgmt role where you help the deal teams underwrite the debt of a deal and help manage the debt and refinancings post-acquisition.   

Mar 18, 2021 - 8:18pm

Here's my question: i got an offer at a Big4 Infrastructure Advisory & project finance. They mainly do PPP and they take lead advisory from start to finish with the public sector. They also work with the private sector on raising capital and financial structuring. The big 4 ofcourse lack underwriting ability. However I see my self after 2 years switching into IBD. Would you say that such move is feasible?

I appreciate your advice.

Mar 19, 2021 - 10:49am

So, a few things: 

1. Don't take a job with the sole intention of switching in a few years.  That mentality is going to set you up for failure and your coworkers will see you're just looking for a way out.  Don't take the job if you think that poorly of it.  There's nothing wrong with changing jobs and I've certainly done it, but I start every job with the mindset that I'm only going to be doing that job until it doesn't work for me anymore.  You'll find a lot of people in the infra space who make entire careers at one firm and often expect the same level of commitment (or at least the mentality of it) from their employees.  As someone who's helped interview and make hiring decisions at a bank and several funds, you can smell an uncommitted job hopper from a mile away so don't be that guy.  

2. Not all Big 4 infra advisory shops are the same, but you can't really do financial advisory without some level of underwriting capabilities.  EY and KPMG are considered more adept, PWC and Deloitte maybe less so.  Same thing with banks, too-- not all are made the same.  

3. Yes, it's feasible.  What is your motivation to go into banking after 2 years though?  What does that accomplish for you?

Mar 19, 2021 - 11:39am

I do not see how I indicated that I had thought poorly of them, the team has pretty much good leadership and great exposure to the geographic location they are advising on. The exposure you get within a big4 advisory is great as the training and learning experience is a great one to be in (if I am not mistaken). Indicating the team lacks underwriting ability does not constitute that I think poorly of them. In fact, contrary to TAS, Infrastructure Advisory at the big4 takes on lead advisory roles, which is something very nice to be experiencing. 

I do not agree with this aspect. I think It is very important to plan for the future and see if you would want to stay within the same field and industry before realizing you had burnt out your chances of switching into the buy-side/sell-side or lending side. Having had said that, I will be taking on deals from start to finish advising the public sector on one of their most important moves in diversifying their economy, which is something I do not think poorly of at all. The offer is in the Middle East where all deals are done in the GCC region. 

At the end of the day, I will have to make some sacrifices, as my family and wife are here in Europe. Of course, the plan is that in the near future she sees if she can switch to the Gulf, but in the case that didn't work out, I wanted to see if it will be possible to switch back to the Lending side if I were to come back to Europe. However, if I had found myself very satisfied with the kind of work I am getting with the team, I would be more than happy to remain with the firm. Would love to stay with the team in the long term, as PPP and the team have good exposure in Infrastructure Advisory, with good leadership.

However, seeking advice and seeing if Infrastructure work in a PPP landscape will get me stuck within PPP is important, as I eventually would need to settle back in Europe where there is less PPP work as compared to the GCC.

This brings the second question, would work experience in the GCC in Infrastructure Advisory get me exposure to come back to Europe? Why I am going to the GCC in the first place is one: I wasn't able to find anything in Europe since March 2020. Two: I am very excited to be working in the GCC as the deals they work on are very exciting and ambitious. Would be nice to be part of this development and gaining this experience. 

Mar 19, 2021 - 12:19pm

Is it possible to transition from a corpdev/M&A role at a power infrastructure company to an infra fund?

Mar 19, 2021 - 12:32pm

Got it. So a fund that makes more direct investments in the actual assets rather than making investments in infra companies as a whole (as in the likes of GIP, Quinbrook and those types)

Mar 19, 2021 - 7:28pm

Should I use the vendor assumptions for repowering on this mid single digits wind farm? In all seriousness solid q&a good to get more folks interested in the beautiful world of infrastructure investing! My condolences for your time at Macquarie your reputation now precedes itself.

  • Associate 1 in PE - LBOs
Mar 23, 2021 - 9:18pm

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  • Associate 1 in PE - LBOs
Mar 26, 2021 - 1:06am

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