Infrastructure

Generally, infrastructure assets directly exposed to GDP growth and economic activity, which include a large proportion in the transportation and energy sectors, experienced the greatest challenges from the pandemic. Meanwhile utilities were resilient throughout 2020 and digital infrastructure outperformed.

However, even within sub-sectors the impact was often uneven. In transport, assets exposed to passenger movements such as airports, commuter toll roads and parking saw greater business disruption compared to ports, rail, or toll roads skewed towards heavy vehicles. In energy, some uncontracted midstream and hydrocarbon exposed assets experienced the dual impact of declining oil prices and reduced demand, while other storage-based assets were in greater demand as the futures price of many commodities exceeded spot prices. On the power side, contracted assets performed better than those exposed to merchant power prices given softness in the economic environment, while renewables experienced strong tailwinds from ESG mandates and falling equipment prices.

The performance of utility assets was steady throughout the year, underlining their status as a stable sub-sector able to withstand volatility in the broader economy. Utilities also saw several notable developments on the regulatory front, especially in the water and gas sectors in the UK.

Digital infrastructure performed strongly in 2020. Measures taken to contain the spread of Covid-19, particularly the increase in working from home and lockdown restrictions, underlined the need for better connectivity and increased demand for data.

This reinforced the importance of digital assets’ role within infrastructure portfolios as a source of diversification uncorrelated to more traditional transport and energy assets.

Valuations in listed and unlisted infrastructure markets diverged more than at any time in recent years. Listed infrastructure securities dropped sharply in line with broader market declines in the first quarter, while unlisted asset prices also fell but more modestly. In situations where sellers were not forced to divest, the valuation mismatch between public and private assets was even more pronounced.

Against this backdrop of volatile market conditions, 2020 was another strong year for ADIA’s Infrastructure Division. The Division, which had reduced the tilt of its portfolio towards GDP exposed assets over the previous 18 months, has a well-diversified and resilient portfolio across its four core sub-sectors of transport, energy, utilities and digital infrastructure, and this delivered a positive performance. The team was also able to reshape its deal pipeline to capitalise on emerging market conditions and leverage its mandate flexibility.

The Division remained an active acquirer of private market assets and increased its focus on public markets, targeting listed companies judged oversold in the market correction of February and March. This resulted in a sizeable redeployment of resources to proactively capitalise on the listed market dislocation and the completion of three new listed investments and further investment into existing listed positions. The team also worked with its co-shareholders to support investee companies managing unprecedented operating conditions to ensure access to liquidity.

During 2020 the Division increased its commitment to Cube Highways, an independent roads platform in India that successfully closed 12 acquisitions in the year and jointly established a greenfield platform to develop renewables, waste and waste-to-energy assets in Asia with Equis and Ontario Teachers’ Pension Plan. The team was also successful in completing an investment in Jio Digital Fiber, an extensive fibre optic cable network in India.

In the year ahead, ADIA’s Infrastructure Division will continue to support the growth of existing assets in the portfolio and pursue listed and unlisted investments that offer an attractive risk reward profile. It will focus on a number of key themes, including the post pandemic economic recovery, the growth in digitisation, and the electrification and decarbonisation of the energy chain. The Division’s current portfolio has significant scale and is highly diversified by geography and sector, and there remains considerable potential to support the growth of portfolio companies through follow-on investments.

Through the Infrastructure Division’s investments, ADIA now has an indirect interest in assets with a renewable energy capacity of more than 20 gigawatts. The team continues to see opportunities to expand its renewable energy portfolio, which is evenly split across developed and emerging economies, with a particular focus on established, innovative technologies such as wind, solar, hydro, biomass, energy from waste and battery storage.

Listed infrastructure will remain a key focus of the team’s strategy as it continues to seek the best opportunities for delivering risk-adjusted returns on a relative value basis.

The competitive environment for unlisted assets and high levels of dry powder, or funds allocated for infrastructure investment but not yet deployed, means the team will remain selective in targeting market-leading assets alongside partners. Given the existing size and maturity of the portfolio, the Division’s focus in 2021 and beyond will be on larger scale acquisitions as well as platforms which enable consistent deployment of capital alongside partners.