Value creation and value preservation

Infrastructure’s asset managers remain laser-focused on enhancing performance and mitigating risk as macroeconomic and geopolitical uncertainty rages around them, three industry professionals tell Amy Carroll and Anne-Louise Stranne Petersen

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Infrastructure’s asset managers have certainly had their mettle tested over the past few years. From a global pandemic and outbreak of war in Europe, to extreme energy price fluctuations and a spike in inflation and interest rates, there has been little respite from extreme uncertainty and volatility. To add insult to injury, they now face the all too real threat of a punishing trade war as well.

Against this backdrop, the asset management professionals that participated in Infrastructure Investor’s 2025 asset management roundtable, were remarkably sanguine, appearing confident that the essential infrastructure characteristics that underpin their strategies will allow them to weather a historically capricious macro environment.

The asset managers were reluctant to be drawn on the impact of US President Donald Trump’s policies but were clear that higher interest rates have brought no adverse effects.

“We are focused on core-plus assets and wherever possible we use long-dated finance, meaning we have not been impacted by rate changes,” says Adam Delaney, managing director at Arjun Infrastructure Partners. “That is not to say that we don’t have to refinance periodically, but we have managed to do so successfully and at relatively attractive rates over the past few years. The key for us is to employ prudent levels of leverage. We don’t bake refinancing gains into our underlying returns strategy.”

Christoph Bruguier, chief investment officer and partner at Vauban Infrastructure Partners, agrees. “We are long-term investors in core assets with predictable cashflows, so we hedge financing mostly with long-dated senior fixed rate debt. Furthermore, the growth profile of our core assets is limited, which means we are not exposed to the need to secure additional financing in the same way that we would be if we were pursuing a buy and grow strategy, for example,” he explains.

“Most of our assets are also inflation protected. We have 90 percent inflation correlation across our portfolio, all of which is to say that we haven’t been adversely affected by a change in the cycle.” Of course, the past few years have shown that contractual inflation linkage is not a panacea and Simo Santavirta, head of asset management, infrastructure, and senior managing director at Ardian, highlights how important having local teams on the ground has proved to be during periods when regulatory or contractual indexations have been spiking.

“Those teams are able to communicate with counterparties, whether corporates, regulators or governments, in their own language, helping to solve issues as they arise. Our mantra is that you need to be able to read local newspapers in the countries that you invest in,” he says.

Exit strategy

While infrastructure managers may have been relatively insulated from the shift in the economic cycle, there is no doubt that this has impacted broader M&A markets and exit activity, in particular. The optimal positioning of assets for sale has therefore become an even more important component of the asset manager’s role.

Ardian, for example, has recently appointed a head of exits, although Santavirta says this is more a reflection of the firm’s growth in assets under management than the macro environment. “We have appointed someone who is dedicated to exit monitoring and execution, but really preparation for exits starts as soon as we invest, and even before.”

Ardian has continued to exit infrastructure assets throughout the past two years, with Santavirta explaining that timing is key: “Exits for transport assets including airports, rail and motorways, for example, had to be postponed during covid, but we exited three transport assets last year, including our Italian airport business in a sale that represented a double-digit return despite the disruption of the pandemic.”

Meanwhile, volatility can also create exit opportunities, says Santavirta. “Power prices increased materially following Russia’s invasion of Ukraine, allowing us to exit renewables platforms in Italy and Spain, generating returns of more than 30 percent in both cases. You need to be flexible and proactive when it comes to exit.

“You need to work with management teams to develop a forward-looking business plan that clearly demonstrates untapped value for potential acquirers. Then you need to run a well-disciplined competitive process to ensure you find the right buyer for the assets. All of that does take a lot of time and resources, particularly in a buyer’s market, but if you are well organised and well resourced, it is possible, even in a challenging environment.”

There is no doubt, however, that valuations in certain subsectors have been materially impacted by the events of the past few years.

“Transportation assets clearly faced valuation challenges in the aftermath of covid, with uncertainty around recovery profiles and questions as to whether there would be any permanent structural shifts in travel patterns,” says Delaney, adding that renewed confidence is evident in transport infrastructure as the sector proves its long-term resilience.

“Our MSA [Motorway Service Areas] business in the UK, Welcome Break, in particular, delivered a record performance last year. We are seeing increased interest and activity in the airport space as well. There is a renewed belief that these assets truly represent core-plus infrastructure.”

Bruguier, meanwhile, points to repricing in the renewables space. “Some renewables platforms in the public markets are trading below their book value. Part of that is due to volatility in power prices. Exposure to merchant risk has been largely repriced as has the value of pipeline, which has historically sometimes been optimistic. There have been some regulatory changes as well. All of this has led to some repricing of the sector.”

He adds that there are other areas of infrastructure where valuations have been affected by a lack of discipline, most notably UK fibre. “That reflects the crystallisation of risk that was embedded in these investments in the first place.”

“The key for us is to employ prudent levels of leverage. We don’t bake refinancing gains into our underlying returns strategy”

ADAM DELANEY

Arjun Infrastructure Partners

Enhancing returns

A further impact of the new macro environment, meanwhile, can be seen in LP appetite for higher-returning strategies. Infrastructure Investor’s LP Perspectives Study 2025 found that almost a third of investors plan to increase their commitments to value-add funds, compared to just 5 percent planning to up their exposure to core.

This poses a challenge for asset managers in the core space. How can they deliver enhanced returns for their investors, without taking risks that would see them stray outside of their core remit?

“We have seen increased appetite to invest in assets that can offer higher returns and there are firms that have moved into riskier, less downside protected areas that would fall outside of our definition of infrastructure,” says Santavirta.

“These investments are more akin to private equity. Our approach to delivering enhanced returns, however, has always been to add real industrial value to assets, optimising operations and executing capex programmes alongside management teams. The only real change for us has been a shift towards taking more control positions. We have also grown our operating partner team to support us in this. These operating partners help us to identify opportunities, particularly those involving under- optimised or under-invested assets. They then help us to develop industrial plans to drive value creation as well.”

Delaney, meanwhile, says that he is actually seeing renewed interest in core-plus infrastructure among a wider LP base, given the shift in interest rates. “This is particularly true in the mid-market. We are increasingly seeing North American LPs interested in what we do, which was not always the case in a low rate environment. The opportunity to access double-digit returns for a core-plus risk profile is deemed to be highly attractive.”

“We have 90 percent inflation correlation across our portfolio, all of which is to say that we haven’t been adversely affected by a change in the cycle”

CHRISTOPH BRUGUIER

Vauban Infrastructure Partners

Bruguier agrees that appetite for core strategies throughout 2024 and into 2025 has been strong. “Our flagship core fund strategy closed in December last year with €3.2 billion raised. I would add that it is possible to add value, without adding risk. For example, we are seeing non-generating assets that require decarbonisation. That is a capex-driven strategy that is providing some interesting dealflow.”

In addition to decarbonisation strategies, Bruguier points to digitalisation as an example of the type of operational improvement that can lead to value creation. “We also derive benefits from a platform approach. That doesn’t mean taking risk on greenfield development, it means derisking your pipeline and scaling up your business with organic growth capex or small bolt-ons. This contributes to synergies and value creation.”

“We have appointed someone who is dedicated to exit monitoring and execution, but really preparation for exits starts as soon as we invest, and even before”

SIMO SANTAVIRTA

Ardian

Santavirta adds: “What is important to us is that we are working with true, brownfield infrastructure assets where the added value comes either from improving an asset that has been under-optimised, whether due to a lack of capability or a lack of access to finance, or through executing build-outs or other capex initiatives.

“Our Dutch waste management company, Attero, is a great example of the former. The previous owners had not really invested in the business, so it was under-optimised. We invested around €1 billion up front and will be deploying another €1 billion during the holding period, in order to fully decarbonise the asset and execute on growth opportunities. Meanwhile, our renewable energy asset GreenYellow is a great example of our platform approach to help businesses grow internationally.”

“The only real change for us has been a shift towards taking more control positions. We have also grown our operating partner team to support us in this”

SIMO SANTAVIRTA

Ardian

The ESG angle

ESG, meanwhile, is increasingly viewed as an important tool for adding value, while at the same time, mitigating risk. “ESG is integral to our strategy from early screening through to the asset management process,” says Bruguier.

“We have specific risk assessments and targets for all assets in terms of their transition to a low carbon economy. We then measure their progress against those targets on a regular basis, with the results then being reported annually to our investors, in addition to our SFDR reports voluntarily audited by a third party. Furthermore, to ensure that all interests are aligned across investment and asset management teams, everyone is incentivised based on ESG KPIs.”

Bruguier says that ESG is critical to performance, in terms of both value enhancement and value preservation. “If you are accessing renewable energy via a long-term PPA, for example, you are protecting that asset from exposure to power price volatility. If you are replacing gas boilers with biomass solutions within district heating assets, you are protecting those assets from natural gas prices, leading to lower cost heat production. There are numerous examples of this within our portfolio.”

“We are increasingly seeing North American LPs interested in what we do, which was not always the case in a low-rate environment”

ADAM DELANEY

Arjun Infrastructure Partners

Delaney agrees that there are myriad opportunities to create value through ESG initiatives. “I would also agree that ESG is essential to ensuring resilience. For example, climate scenario modelling at some of our renewable generation plants found increased operational risk based on the likelihood of more frequent periods of high temperatures. As a result, we have made operational changes to those assets to future proof plant performance ahead of expected changes in weather patterns.

“Meanwhile, from a value enhancement perspective, our Danish biogas business has successfully secured a place on a pilot scheme that the Danish Energy Agency is running around biogenic carbon capture and sequestration. Participating in the scheme supports continued decarbonisation of the wider biogas industry and has also delivered incremental value that we had not originally contemplated.”

“We are seeing nongenerating assets that require decarbonisation. That is a capexdriven strategy that is providing some interesting dealflow”

CHRISTOPH BRUGUIER

Vauban Infrastructure Partners

Talent and technology

All of these asset management initiatives require access to high-quality talent, of course, something that has proved to be a scarce commodity in many markets.

“It is a competitive recruitment market. In some instances, we as long-term asset owners are competing against private equity-backed businesses offering the potential for lucrative equity gains,” says Delaney. “We are always willing to pay the right price for the right candidate, however. Furthermore, we have the advantage of being able to provide long-term incentive packages that align everyone around common goals. We can also offer greater certainty around the ability to meet those goals when compared to private equity.”

“We certainly pay attention to costs and labour cost escalation is something that everyone has had to deal with during the recent years of high inflation,” adds Santavirta. “Of course, the inflation linkage in our portfolio helps manage this kind of a situation. In terms of recruitment, I agree that you need to make sure that you have top talent in your management teams, and you need to pay what the market requires. Alignment of interest with us, and ultimately our LPs, through appropriate incentivisation packages is critical.”

As well as human resources, delivering value through good asset management increasingly means implementing the latest tech developments. Indeed, Ardian Infrastructure chief investment officer Marion Calcine recently revealed that Ardian is using AI and machine learning to optimise its renewables portfolio, generating millions a year in additional revenue as a result.

Elsewhere, infrastructure managers are recalibrating their teams and exploring how best to leverage these new developments.

“Our first step was to bring a data analyst into the team,” says Delaney. “AI is still quite nascent for us, but there are a number of sectors where we see opportunities, for example transportation. Big data and AI are potentially exciting when it comes to predicting future traffic projections or movements of people. This is particularly true for our MSA business. We are also an investor in UK rolling stock and that business is already using AI to facilitate the real-time monitoring of equipment and to track planned and preventative maintenance across the network, benefiting both operators and passengers.”

Vauban also has rolling stock assets that use telematic devices to gather data and translate it into action, starting with the early implementation of predictive maintenance.

“We are still at the beginning of our AI journey, but we do see real potential” Bruguier says. “One of our portfolio companies, Coriance, for example, launched a pilot project using machine learning at the end of last year, with the aim of increasing the energy efficiency of combustion. The hope is that that will lead to reduced emissions and improved efficiency.”

With no let-up in the frequency and intensity of global shocks, infrastructure’s asset managers are embracing the tools at their disposal to enhance efficiency and add value, all of course, while closely monitoring risk to ensure that they continue to deliver the risk-adjusted returns that their investors have signed up for.

Adam Delaney

Managing director, Arjun Infrastructure Partners

Adam Delaney joined Arjun in 2019. He covers investment and asset management responsibilities, with experience across renewable, regulated and transport sectors. Adam previously worked at Scottish Equity Partners, acting as director of finance and head of asset management for SEP’s energy infrastructure fund.

Extract from Infrastructure Investor magazine

Roundtable: Value creation and value preservation

April 2025