David Tallman: Welcome to "Hard Hats and Quick Chats," where we unpack investment topics within private real assets. And today we wanted to discuss private infrastructure valuations and performance. And for that very reason, we have Adam Thouret, who covers everything from deal sourcing to asset management within the private infrastructure space. Adam, welcome.
Adam Thouret: Thanks for having me.
David Tallman: Adam, coming out of the pandemic, we saw interest rates rise significantly, and as a result, asset classes across the globe, private, public, saw significant performance pressures. However, private infrastructure posted very strong returns. What would you attribute that to?
Adam Thouret: Yeah, the strong performance in infrastructure is really driven primarily by the essential nature of the asset themselves. These assets are critical to everyone's day-to-day life, and with that comes a certain degree of pricing power that infrastructure owners can use to push through cost increases, whether that's higher interest rates or inflation, and pushing that onto the end user. And that's provided some of the stability and performance through some of that broader market volatility you mentioned. There are two other factors that I think are important right now in the overall market. One is the broad societal need for infrastructure investment across the globe. And the second is that portfolio managers are increasingly becoming aware and acknowledging the benefit of having private infrastructure within their portfolio. That increases overall investor demand and helps further support valuations.
David Tallman: Understood. So let's talk about investor demand. So how about a potential investor within the space that is concerned about the fact that infrastructure has had very strong performance, which perhaps has led to frothier valuations within the space, which could compromise their entry point or forward-looking returns, what would you say to that potential investor?
Adam Thouret: First off, I'd say that infrastructure as a whole still has some pretty compelling valuations when you consider the overall societal demand and the predictability and stability of underlying cash flows. That said, not all infrastructure can be painted with the same brush, particularly when it comes to the size of the infrastructure asset itself. Within the TD Greystone Infrastructure Strategy, we focus on the mid-market, away from the highly competitive, broadly marketed auctions in the larger side of the market. We focus on an area where we can source bilateral transactions, negotiate on a one-to-one basis, and we feel that that has given us better investment outcomes as we're able to execute on more attractive entry prices. So, that mid-market focus is a core part of our overall strategy. The other thing I'd mention is that an open-ended strategy such as ours can do development and construction of new wind parks or solar parks or battery storage facilities as the case may be. And that's something that the TD Greystone Infrastructure Strategy has executed on in the past. Now we think participating in that development cycle improves the overall risk-adjusted return for the strategy or vehicle itself. And our development approach has been a core part of our overall philosophy from day one, from our first investment, Silicon Ranch, where we took an interest in a operating platform that had 50 megawatts of solar in the United States. To date, it has 3.2 gigawatts of operating solar, so quite a large degree of growth, and that development cycle really helps us drive returns on a go-forward basis.
David Tallman: Understood, and I'm glad you brought that up because I think those are two important components, your growth, your development within that space, as well as your core operating assets within infrastructure. I'd be interested in how you combine those within an overall infrastructure strategy.
Adam Thouret: Yeah, we feel it's important for our clients to have a diversified mix of those asset classes. So within our portfolio, we have 25% is exposed to the development cycles and that value-added side of the investment sector. The other 75% of our portfolio is that core operating brownfield cashflow yielding asset that provides that stability of income. When you add those two together, we feel that we have a very attractive product pipeline for a potential institutional investor to invest in.
David Tallman: Excellent. So it sounds like having an open-ended strategy with the longevity and optionality to access the growth, access the core operating within the current pricing environment can really increase expected returns within the space, Adam, but that's it, we're going to have to wrap it up. Thanks a lot, really appreciate it. And thank you to our viewers. Of course, if you have any questions, please do not hesitate to reach out to your relationship manager and we will get back to you as soon as possible. Thanks a lot and have a great day.
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