Update Magazine II/2021 DOWNLOAD THE COMPLETE MAGAZINE
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1  Is infrastructure more resilient?

Institutional investors often ask about the effects of Covid-19 on infrastructure as an asset class. Has infrastructure turned out to be more resilient? How have we managed our portfolio companies as investors? In order to answer these questions, it is necessary to distinguish between the various infrastructure classes (e.g. core, core plus, value add) and sectors.

Our infrastructure portfolio ranges from gas, water and electricity networks, through onshore wind and solar energy plants, to transport (toll roads, motorway service stations, on-street car parking) and fibre optic networks. Almost all of our infrastructure investments provide essential public services, and are therefore not directly correlated with short-term market developments. Nevertheless, the pandemic has revealed some stark differences with regard to crisis resistance: while the use of airports, motorways and public transport declined sharply in the short term, so-called regulated critical infrastructure – such as electricity, gas or water networks – proved to be very resilient. The importance of high-speed and stable digital communications networks increased even more – and the need to roll more networks out to provide wider connectivity became abundantly clear.

Covid-19 was the ultimate stress test both for our own business continuity management processes and for the performance of our portfolio companies. These have proven to be reliable, and the desired stability of most infrastructure investments has been confirmed during the crisis. However, the pandemic has illustrated once again that active asset management and broad diversification across various regions and sectors contribute to the stability of an investment portfolio. 

2  Digital infrastructure in action

Most companies were able to adapt to the new situation very rapidly. The prerequisite to enable people to work flexibly from home is a high-speed Internet connection. Unfortunately, this is often still unavailable, especially in many rural areas. In 2019, Germany was lagging behind most other OECD countries in terms of connectivity: only 4% of all German households had a broadband connection. It is therefore necessary to bridge a huge digital divide, and private investors can help in that process. Allianz Capital Partners has been investing in the expansion of digital infrastructure for some years. At the end of last year, a joint venture with Telefónica was announced to further accelerate the fibre-optic rollout in underserved regions of Germany.¹

However, even after the pandemic, working patterns will have changed permanently, and some people will want to continue to work remotely from home. The past 17 months have shown that this is in fact possible. Local and digital supply chains have gained in importance during the lockdown, and companies must be able to rely on digital solutions. Digital infrastructure will be a critical comparative advantage for this process.

A/    THE FOUR PILLARS OF ACP’S APPROACH TO ESG

3  ESG more important than ever

Nor does the pandemic mean that ESG aspects are no longer relevant. On the contrary: the Covid crisis has actually highlighted the importance of the ‘S’ for Social and ‘G’ for Governance. For us as an active investor, this means ensuring that our own employees, and those of our portfolio companies, can continue to work in the best possible way, and in a safe environment. This is vital, especially for companies that need to maintain essential infrastructure services for our society, even in a crisis. Furthermore, we supported our portfolio companies’ initiatives in providing assistance in their communities. Whether it be the engineer from a gas network who used his regular customer visits to do the grocery shopping for elderly people in the area during the lockdown, or the water company that offered its workers at home mental health guidance – Covid-19 has been the pivotal moment for all responsible companies to prove that they ‘walk the talk’.

The pandemic has also tested companies’ governance models and business continuity management. Measures that used to seem impossible needed to be – and were – suddenly realised in record speed. Crises make one learn for the future. In this regard, the pandemic has underscored the importance of a forward-looking approach. More than ever, we believe that investors will remain focused on ESG aspects in order to meet future challenges (see Chart A/).

B/    ACP HAS SOLID EXPERTISE IN EACH OF THE SECTORS, AND CAN DEMONSTRATE A LONG-STANDING TRACK RECORD IN ALL AREAS

4  What’s next? The future!

The pandemic is not over yet, and there will be no complete “back to normal”. The enormous government stimulus packages around the world should support the economic recovery, and foster new investment structures. Infrastructure can play a vital role in the post-pandemic recovery, as a driving force towards a sustainable future, as the European Union’s Green Deal impressively illustrates. It is estimated that in the next 10–15 years, Germany’s electricity grid operators alone will need to invest more than EUR 100 billion in order to accomplish the energy transition. And required investment in green hydrogen in Europe could amount to an additional EUR 300–400 billion in the same period. Pension funds and insurance companies manage an estimated EUR 13 trillion in Europe, and have invested only a relatively small portion in infrastructure so far. With stable conditions and well-structured projects – in order to meet regulatory requirements – they could channel longterm insurance and retirement funds into sustainable infrastructure, making a real difference for the benefit of a changing society – and their clients.

¹ This is no recommendation or solicitation to buy or sell any particular security.

Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable at the time of publication. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted; except for the case of explicit permission by Allianz Global Investors GmbH.

The volatility of fund unit prices may be increased or even strongly increased. Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. We assume no obligation to update any forward-looking statement.

This is for information only and not to be construed as a solicitation or an invitation to make an offer, to conclude a contract, or to buy or sell any securities. The products or securities described herein may not be available for sale in all jurisdictions or to certain categories of investors. This is for distribution only as permitted by applicable law and in particular not available to residents and/or nationals of the USA. The investment opportunities described herein do not take into account the specific investment objectives, financial situation, knowledge, experience or particular needs of any particular person and are not guaranteed. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer and/or its affiliated companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail.

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For investors in Switzerland: This is a marketing communication issued by Allianz Global Investors (Schweiz) AG, a 100% subsidiary of Allianz Global Investors GmbH, licensed by FINMA (www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge) for asset management related to occupational pensions. Details about the extent of the local regulation are available from us on request.

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