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Europe the best place for infrastructure opportunities

Alex Araujo, Fund Manager, Global Listed Infrastructure, M&G Investments

Europe offers the best opportunities in infrastructure in the world, experts agreed at Real Asset Media’s Infrastructure Summit: investment opportunities in European infrastructure briefing, which was held online this week.

“There are opportunities everywhere, but in Europe we have some of the most attractive valuations in infrastructure globally,” said Alex Araujo, fund manager, global listed infrastructure, M&G Investments. “There are some very attractive opportunities in the listed realm, and that’s why in our global equity allocation we’re overweight Europe.”

The framework is positive in Europe because the system incentivises capital investment, especially in newbuild or retrofit, although there will be a lag between the stimulus available now and the wave of capital rolling in.

“Most portfolios are overweight Europe, it’s very popular,” said Richard Abadie, partner, global leader of capital projects and infrastructure group, PwC. “In developed markets there’s an ecosystem that works very well and the amount of capital available exceeds what is needed.”

Emerging markets are a much trickier proposition, he said, involving currency risk and issues over security of legislation and regulations.

Green Deal means ‘huge opportunities’ in Europe

“We see huge opportunities in Europe thanks to the Green Deal,” said Jan-Peter Mueller, executive director, head of asset structuring and infrastructure investments, Commerz Real. “There will be a lot to do in the UK, in Germany and in the Nordics, but Spain, Portugal and Italy are going strong as well.”

In Germany, new greenfield infrastructure developments will be needed on top of existing stock transformation. By 2030, 10,500 km of new motorways and an additional 3,118 km of railways will be built and the waterways will be expanded by 1,155 km. PwC calculates that €300 billion will have to be invested just in physical, not digital infrastructure in Germany.

“The numbers are huge but it won’t be a problem to finance,” said Thomas Veith, partner, real estate, PwC. “The key challenge is capacity and capability in the public sector, so the private sector needs to be involved. Every year in Germany we see over 50 large scale transactions, in the hundreds of millions of euros, and there is room for many more deals in future.”

Outside Europe, eyes are fixed on the US because if Joe Biden’s mega-plan goes through then there will be plenty of opportunities. In many states the improvement of infrastructure like roads and bridges has become an issue of public safety.

“Our main focus is and will remain Europe, but other countries are interesting, like the US, Australia, Canada, Japan and Taiwan,” said Mueller.

“We go where regulations are welcoming, returns are good and public policy initiatives create unique chances,” said Araujo. “In Europe, it’s all built around the green recovery plan. At the micro level there are many opportunities. It takes a lot of work, but you end up with a portfolio of businesses that can do very well.”