インフラ資産を通じた欧州フォーカス分野への投資

Talking Heads with Karen Azoulay

Daniel Morris: Hello and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis through the lens of sustainability on the topics that really matter to investors. In this episode, we’ll be discussing infrastructure investing. I’m Daniel Morris, Chief Market Strategist, and I’m joined today by Karen Azoulay, Head of Real Assets. Welcome, Karen, and thanks for joining me.

Karen Azoulay: Thanks, Daniel. Great to be here.

DM: We think about the many things that have changed since [President} Trump’s inauguration. Initially, people [were] quite biased towards investing in the US, expecting high levels of growth and rising equity markets. Things haven’t quite gone as planned. There’s an appreciation [now] of the virtues of investing in other regions and particularly in Europe. Could you talk about why you see Europe as an attractive market for long-term investments?

KA: We still believe Europe is a safe and stable place for investment, especially for long-term investment. In our view, this optimism is justified, even with the US import tariff announcement and the uncertainty around the final level of [the] tariffs.

If we take the report on the future of European competitiveness published last September by former ECB President Mario Draghi, it underlines really the need for Europe to wake up. The overall message is Europe must, and now is, refocusing its investment effort on innovation and technology. It should invest at least 800 billion euro per year. So, it’s huge, taking the opportunity to decarbonise. The EU needs to have an ambitious industrial strategy. Interestingly, based on this report, the European Commission launched a clean industrial deal early this year. It offers concrete actions to turn decarbonisation into a driver of growth for European industries. We have seen changes in public spending at the European level. This includes the Re-Arm Europe plan, the German €500 billion infrastructure investment plan. All these steps should have a positive long-term impact on both growth and inflation. We are seeing that Europe is reacting quickly on defence sovereignty, industrial sovereignty and competitiveness.

DM: You talked about the recommendations from the Draghi plan and the many things that Europe will hopefully be doing in the future to enhance growth. Can you talk more broadly about why infrastructure is an interesting asset class given that macro context?

KA: We believe infrastructure is an interesting asset class thanks to its key features. Infrastructure assets are usually considered as decorrelated from economic cycles. We have experienced that during recent crises such as the pandemic or with inflation and interest rates rising quite sharply. The key features are, first, those assets provide an essential product or services, so electricity, transportation or high-speed Internet access. Those assets usually benefit from high barriers to entry or even sometimes monopolistic positions and regulated or contracted revenues. This means stable and predictable cash flow for investors.

What is interesting is that in this new industrial plan at the European level, infrastructure sectors are largely represented, for instance, electricity, digital infrastructure, clean technology, clean mobility.  Even critical raw materials is an important part of the clean tech sectors, which are key for competitiveness and affordable energy, maximising the EU’s limited resources and reducing overdependencies on third-country suppliers. So yes, infrastructure is really an interesting asset class.

DM: Karen, you shared with us the macro picture you see in Europe. At the same time, we see the volatility in the market, investors perhaps looking for other areas to invest besides public equities.

KA: What we are seeing is that investors are resuming their search for yield. We are seeing appetite moving up the risk-reward spectrum compared to a couple of years ago because for the same return,  it offers less risk and cash in from day one. On the other side of the risk spectrum, opportunistic strategies do not benefit from downside protection, which is really a part of the key features of infra assets. In that environment, it’s an interesting entry point.

DM: Where do you see the most promising sectors across the asset class?

KA: The market is very active. We have experienced an improvement in M&A activity with market conditions that are favouring buyers. We are also seeing that, as there’s a lack of liquidity in the market, shareholders are welcoming new equity because they need to finance their growth or their capex plan. It’s exactly for the same reasons junior debt is an interesting tool to complement this type of equity fundraising.

In terms of sectors, we are seeing that datacentres and decarbonisation are still the megatrends and will continue to dominate deal activity this year. Then we have the electrification trends. Global demand for power is forecast to increase by 100% by 2050. AI and datacentres are driving the additional need for power. That energy in Europe should be clean, affordable, and available immediately. That’s why renewable energy is the obvious solution. We are seeing a lot of projects.

More broadly in the energy transition space, more and more investment in battery storage, especially when coupled with a solar plant. It makes sense as it mitigates the intermittency of renewables and reduces pressure on the electricity grid.

That’s one important portion of the energy transition space. Decarbonisation of transport is a trend as well, with rail electrification, clean mobility. And lastly, circular economy is crucial for Europe, but maybe too early stage as there’s still technological risk. Biogas, which can be part of a circular economy, is a growing trend as it’s needed for gas [supply] resilience in Europe.

So, capital is increasingly going to sectors that offer growth and development, but still, we are seeing transactions around refinancing existing assets, so less risk and still a large part of this promising market for European infrastructure assets.

DM: If I could summarise some of the key points. You highlighted how Europe these days  seems to be a safe and stable place for investments. You talked about the increase in infrastructure spending that we anticipate across all of Europe. Some of the key features you highlighted were its broad decorrelation from the economic cycle, high barriers to entry and stable and predictable cash flow. And finally, some of the promising sectors you were looking at included electrification, energy transition, and the circular economy. Well, Karen, thank you very much for joining me.

KA; Thanks a lot, Daniel. It was a pleasure.

DM: That’s it for this week’s episode of Talking Heads. If you would like more information about our capabilities in infrastructure investing, please reach out to your BNP Paribas Asset Management contact or check out Viewpoint, our website for investment insights at viewpoint.bnpparibas-am.com. We recommend subscribing to Talking Heads on your favourite podcast channel such as YouTube or Spotify. You’ll receive your podcast episodes every week. If you like Talking Heads, leave us a positive review and a nice rating. You’ve been listening to the BNP Paribas Asset Management Talking Heads podcast with me, Daniel Morris, and Karen Azoulay, Head of Real Assets. Please do join me next week.
Until then, take care.