Infrastructure Equity │ Institutional Clients

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A highly functional and modern infrastructure is the foundation of economic development and essential for upholding people's quality of life. So it is vital to invest in the road and rail networks needed to transport people and goods, in clean power generation and digital infrastructure, and in meeting the basic human needs for clean water and sanitation.

The global demand for infrastructure investments up until the year 2040 is expected to be around $100 trillion. A further $3.5 trillion will be required to meet the United Nations Sustainable Development Goals for power and water. The need for infrastructure spending varies by region, with Asia accounting for about 60 percent of the estimated global requirement, followed by the Americas (17%) and Europe (16%). In terms of sectors, electricity and roads are the biggest investment targets, and together they will account for 65% of the global infrastructure spending until 2040.

Against this background, equity investments in infrastructure are an attractive proposition. The asset class has a low correlation to other asset classes, can offer inflation protection, and it represents a valuable alternative for diversifying capital investment. Those who also take into account megatrends such as climate change or digitalisation make their portfolio more resilient, can achieve higher returns over the long term at the same level of risk, and contribute to the positive transformation of industry and society.

Dominik Damaschke

Head of Infrastructure Equity

It is becoming increasingly important when doing the due diligence for infrastructure investments to identify resilient and sustainable business models that positively impact industry and society.

It is absolutely crucial to assess all relevant risk factors and value drivers when making an investment. It is also important to have good market access coupled with industry expertise and the ability to provide active, value-enhancing asset management. This is the only way to achieve attractive returns, and we want to help you do so, at your side as partners:

Many years of experience and a proven track record

> EUR 3.5 bn │ 12 yrs │ 36 investments

In our Infrastructure Equity unit, MEAG has provided more than EUR 3.5 bn in equity for Munich Re in 36 transactions across various sectors since 2010. Our well-diversified portfolio has generated a strong IRR of around 8% p.a. since its inception.

As a long-term "buy-and-hold" investor, we aim to deliver value-enhancing returns with an integrated asset management concept. We take a hands-on approach to increasing the value of our assets, encompassing everything from corporate governance and stakeholder engagement through to optimising our portfolio with operational and financial initiatives.

Karte ansehen

Active portfolio management

We are in constant dialogue with the management and co-shareholders of our portfolio companies, in an effort to proactively influence their decisions and strategies. Because that is the only way to actively capitalise on the full earnings potential and mitigate risks.

Keep a close eye on how the business plan is implemented and performances are rendered, based on ambitious KPIs
Regularly review refinancing options to increase the return on equity
Actively monitor the construction process of greenfield assets
Regularly examine investment possibilities in the portfolio companies, including strategic initiatives and potential acquisitions
Actively identify potential cost savings

Risk management concept

In the Infrastructure Equity unit, we apply a structured risk management approach that covers the entire investment process. First of all, when considering new investments, we do a structured and extensive due diligence to identify tax, legal and commercial risks. In doing so, the deal team obtains a clear picture of the target company and puts together a comprehensive business plan together with external advisors that reflects the results of the due diligence study. And we also do a technical and an ESG review with assistance from Munich Re.

An independent Risk unit within MEAG is involved throughout the entire investment process in order to mitigate commercial risks quickly. MEAG can also call on the expertise and many years of experience of Munich Re when considering risk factors. Direct access to Munich Re's global platform and the extensive network of leading industry experts (e.g. from the technical and insurance sectors) enables us to carefully assess risks.

During the holding period of the asset, MEAG ensures continuous and comprehensive monitoring of the risks and can thus react dynamically and quickly to changing circumstances. After the investment decision, continuous monitoring of the valuation in close cooperation with the portfolio team ensures that Risk Management can assess any developments or decisions that may affect asset values.

With seats on various decision-making bodies of the portfolio companies, MEAG plays an active role in the companies' strategic decisions. The Portfolio Managers may also be in contact with the CEO, CFO and other members of the portfolio companies' management. The management and control practices can thus influence the management's decision-making processes and help minimise risks.

Sharing expertise and know-how with Munich Re

Through our affiliation with Munich Re, we have a global network at our disposal and thus access to outstanding industry experts. MEAG uses this expertise to examine new investments. The MEAG and Munich Re departments are in constant discourse with each other throughout the investment process:

Strict investment process from the first screening through to the final investment decision:

The spectrum of activities ranges from finding suitable investment projects, through to due diligence studies and on to the ongoing management of the investments. Our projects are either public-private partnerships ("PPPs") or involve private infrastructure provided by companies and required by the public.

We carefully analyse the risks of the individual investment projects, limiting loss risks by focusing on choosing defensive investments. A key success factor when investing in this asset class is the extensive experience and outstanding expertise of our specialised investment team. Our strong market position gives us a competitive advantage when accessing attractive infrastructure transactions for our investors.

Investment in line with global megatrends

Our investment focus underlines the global megatrends of (i) Energy Transition, (ii) sustainable transport, (iii) digital and (iv) essential infrastructure, with the sustainability (ESG) of the chosen business models being of central importance:

Diversified infrastructure portfolio with an attractive risk/return profile

In the Infrastructure Equity asset class, we invest in infrastructure companies and projects with a "core" or "core+" risk profile. In doing so we focus on both brownfield and greenfield assets and consider both minority and majority stakes. Our goal is to build a diversified infrastructure portfolio with an attractive risk-return profile, with an investment focus - based on global megatrends - on the Energy Transition, Sustainable Transport, Digital Infrastructure and Essential Infrastructure sectors in Europe and North America. Clear ESG guidelines play a key role in our choice of investments.

Regular and reliable profit distributions and a stable dividend yield are important criteria when considering investments. This can be achieved by selecting companies for the portfolio that historically have strong account balances, that exist within a stable regulatory environment, that have long-term contracts and/or with which an inflation correlation can be obtained.

Another criterion is hedging against downside scenarios. We make this possible by investing in companies with limited competition, high market-entry barriers, contractually secured sales and strong contractual partners. The investment approach is also characterised by a long-term orientation and active asset management over the entire investment horizon.

FAQs

What professional investors is this investment suited to?

Ideal for investors:

With a long-term investment horizon
That want to additionally diversify their investment portfolio
That seek stable and predictable returns throughout the entire term
That are interested in sustainable investments

Why invest in infrastructure equity?

The asset class ensures minimal value fluctuations and makes an important contribution to investment diversification
Many infrastructure assets offer good protection against inflation due to their market position, contracts or regulation
There is an immense need for investment in infrastructure around the globe. Societal megatrends such as climate change and digitalisation are creating new opportunities for equity investments in infrastructure

Which ways of increasing the value of acquired companies do we use?

We are in constant dialogue with the management of our portfolio companies and our co-shareholders, in an attempt to have a positive influence on the management's decisions and the strategies of the companies in our investment portfolio. With seats on various decision-making committees of the portfolio companies, our team takes an active part in strategic decisions. The portfolio managers are also in close informal contact with the CEO, CFO and other members of the portfolio companies' management.

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Sources / Legal note:
¹Global Infrastructure Outlook von Global Infrastructure Hub with Oxford Economics/ Worldbank 2017.
²Quelle: Transforma Insights Research, ITU/ ICT Statistics, ITU Global Cybersecurity Index 2020 Report
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