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The extreme volatility we’ve seen in stock markets this year has left investors yearning for stability. Infrastructure is one asset class that could provide more predictability in income. Kim Parlee talks to Jeff Mouland, Head of Infrastructure Investments at TD Asset Management.
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[MUSIC PLAYING]
- The extreme volatility many investors are seeing in the stock market have many yearning for some sort of stability. Infrastructure is one asset class that can provide more predictability in income, but not all infrastructure is created equal. Joining me today is Jeff Mouland. He's head of Infrastructure Investments at TD Asset Management. Jeff, it's good to see you. And I just want to jump in. We'll bring up a chart in a minute, but first, can you just give us a high-level picture of how you look at infrastructure assets, and why all infrastructure assets are not created equal?
- Yeah. Thanks, Kim, for having me. I think, as the last year really highlighted with the pandemic, is that all assets are definitely not created equal. Traditionally, the infrastructure asset class has provided good, steady returns, but this year, obviously, there has been differences. So it really depends on your portfolio construction, in terms of what kind of performance your portfolio will have this year.
If we look at GDP-based type assets, such as aviation, airports, that clearly has some strong headwinds. You know, decline in passenger traffic, reduction in airport revenues has really translated into a lot of difficulties for that subsector of infrastructure. And in my view, it will be a multi-year recovery before that gets back to normal, for whatever normal really means in this world today.
On the flip side, if we look at utilities and renewables, those assets have performed well, and continue to perform well. And it's one of those asset classes that infrastructure investors are leaning more towards now, especially this post-- or during this pandemic year, the period of time. We're looking at activities in the Q4 of this year, and those assets are trading at really robust valuations. So that is an example of how that investment would be very different from the aviation investment.
- Hm. I want to bring up a chart-- we got this from your team-- where you take a look at-- I think it's revenue models. And it puts just a finer point to what you were saying in terms of lower risk, higher predictability of revenue, versus lower predictability and higher risk. And maybe you could just tell me, or tell us, just how you are positioned on your infrastructure investments going into this, and moving forward.
Fundamentally, that chart highlights the different risk profile of contractual revenues. Investors are basically buying into integrity and visibility on its revenue stream. And that really will vary, depending on one end of the spectrum or another. If you look at GDP assets, like I said, aviation, ports, toll roads, they're on the upper end of that spectrum. So while returns may be a little higher, the certainty of revenue will be more questionable.
On the lower end of that scale, we're talking about the availability-based projects, like transmission, contracted generation around renewables, et cetera. And with that sort of certainty of revenues, I think that's where you're at less risk in terms of this COVID world.
We are positioned well. I mean, we are definitely a conservative investor in the context of core, core-plus investing, and we are more towards the contracted nature of that chart. Our revenue, I think, is something like 92%, 93% of our portfolio has some form of contractual revenue component. So relative to this COVID world, our performance has done well.
And as we go forward, I really don't think our strategy will change that much. We really focused on asset liquidity management over the past year to make sure our assets perform well. And given what we've seen in the past, asset security and asset certainty will be part of our strategy going forward. So we really don't see our strategy dramatically changing as it pertains to our asset mix within our portfolio.
Let me ask you-- I know that ESG, Environmental Social Governance, is playing a big factor in how TD Asset Management takes a look at valuing all investments, and I'm assuming your world as well. Maybe you could just tell us, I mean, what impact that has on your decision-making. And if you wouldn't mind, I know you've got a couple of good examples, as well, in terms of some work with First Nations and a battery factory in Alberta.
- Yeah, for us, ESG is, I think, key to our long-term investing. We are a long-term sustainable investor. We're structured as an open-end fund. So the investment decisions that we make typically are meant to be on our books for a long period of time. And so we have adopted a very specific ESG policy that's in the best interests of our investors. And that provides the methodology to how we treat investments in all jurisdictions, whether it's in Europe, North America, or other jurisdictions. And that provides consistency in terms of how we approach things.
So while economic return is clearly a prerequisite for any investment, our investment methodology does incorporate strong ESG policies. That's around, for us, for example, clean energy, sustainable energy. We have a strong portfolio of wind assets, solar assets, waste facilities, battery storage, and we're getting into hydro. And that's spread across Scandinavia, Ireland, the United States, and Canada. And so that green sustainable energy component of our investment philosophy will always be at the forefront within the parameters of the ESG guidelines.
We are a strong believer in ethical investing around labor policies and around strong governance with our partners. And in terms of our partners that we do work with, we are very excited relative to our activities with the First Nations here in Canada. The First Nations have been part of our fund since inception, and we have invested side by side with them on projects here within Canada.
- And within those, I was asking, too, if you could tell us about you've got-- and I apologize, we're a little short on time, but there is one project of First Nations, a transmission project, and another one which is an energy project in Alberta, but not your typical energy project.
- Yeah, absolutely. The project you're referring to is the operating transmission line in Alberta. It's a 35-year concession, strong availability-based revenues. And with that project, we have seven Indigenous communities as equity partners on that transaction. And we're excited about that. It provides good diversification to our investors, but at the same time, it provides generational equity benefits to the First Nations involved in that project. And hopefully, we'll take that model and replicate that in other jurisdictions within Canada. It is a strategic component of how we grow our business domestically within Canada.
The other project you're referring to is the battery generation project. We have a portfolio of assets in British Columbia, Alberta, and Saskatchewan in the energy space and in the power generation space. And we've recently entered into contracts and started construction of about 60 megawatts of battery generation in that province. And you're absolutely right, that's not something you think about relative to Alberta, but it's an important part of the greening policy of Alberta, and basically decreasing the carbon footprint as pertains to new generation.
- So Jeff, what kinds of investor should be thinking about infrastructure?
- Yeah. For those investors that have a desire to get in the alternative space, obviously infrastructure is a very clear choice for those type investors. Long-term predictable returns, a balanced portfolio, both domestically and globally, and really a focus on green investing that's going to be sustainable for the long term. Institutional investors relative to pensions, as well as TD, we are looking to develop, bring in other investors to TD based on real assets funds. So that would be sort of the investor that we would be looking at.
- Jeff, always a pleasure. Thanks so much.
[MUSIC PLAYING]
- The extreme volatility many investors are seeing in the stock market have many yearning for some sort of stability. Infrastructure is one asset class that can provide more predictability in income, but not all infrastructure is created equal. Joining me today is Jeff Mouland. He's head of Infrastructure Investments at TD Asset Management. Jeff, it's good to see you. And I just want to jump in. We'll bring up a chart in a minute, but first, can you just give us a high-level picture of how you look at infrastructure assets, and why all infrastructure assets are not created equal?
- Yeah. Thanks, Kim, for having me. I think, as the last year really highlighted with the pandemic, is that all assets are definitely not created equal. Traditionally, the infrastructure asset class has provided good, steady returns, but this year, obviously, there has been differences. So it really depends on your portfolio construction, in terms of what kind of performance your portfolio will have this year.
If we look at GDP-based type assets, such as aviation, airports, that clearly has some strong headwinds. You know, decline in passenger traffic, reduction in airport revenues has really translated into a lot of difficulties for that subsector of infrastructure. And in my view, it will be a multi-year recovery before that gets back to normal, for whatever normal really means in this world today.
On the flip side, if we look at utilities and renewables, those assets have performed well, and continue to perform well. And it's one of those asset classes that infrastructure investors are leaning more towards now, especially this post-- or during this pandemic year, the period of time. We're looking at activities in the Q4 of this year, and those assets are trading at really robust valuations. So that is an example of how that investment would be very different from the aviation investment.
- Hm. I want to bring up a chart-- we got this from your team-- where you take a look at-- I think it's revenue models. And it puts just a finer point to what you were saying in terms of lower risk, higher predictability of revenue, versus lower predictability and higher risk. And maybe you could just tell me, or tell us, just how you are positioned on your infrastructure investments going into this, and moving forward.
Fundamentally, that chart highlights the different risk profile of contractual revenues. Investors are basically buying into integrity and visibility on its revenue stream. And that really will vary, depending on one end of the spectrum or another. If you look at GDP assets, like I said, aviation, ports, toll roads, they're on the upper end of that spectrum. So while returns may be a little higher, the certainty of revenue will be more questionable.
On the lower end of that scale, we're talking about the availability-based projects, like transmission, contracted generation around renewables, et cetera. And with that sort of certainty of revenues, I think that's where you're at less risk in terms of this COVID world.
We are positioned well. I mean, we are definitely a conservative investor in the context of core, core-plus investing, and we are more towards the contracted nature of that chart. Our revenue, I think, is something like 92%, 93% of our portfolio has some form of contractual revenue component. So relative to this COVID world, our performance has done well.
And as we go forward, I really don't think our strategy will change that much. We really focused on asset liquidity management over the past year to make sure our assets perform well. And given what we've seen in the past, asset security and asset certainty will be part of our strategy going forward. So we really don't see our strategy dramatically changing as it pertains to our asset mix within our portfolio.
Let me ask you-- I know that ESG, Environmental Social Governance, is playing a big factor in how TD Asset Management takes a look at valuing all investments, and I'm assuming your world as well. Maybe you could just tell us, I mean, what impact that has on your decision-making. And if you wouldn't mind, I know you've got a couple of good examples, as well, in terms of some work with First Nations and a battery factory in Alberta.
- Yeah, for us, ESG is, I think, key to our long-term investing. We are a long-term sustainable investor. We're structured as an open-end fund. So the investment decisions that we make typically are meant to be on our books for a long period of time. And so we have adopted a very specific ESG policy that's in the best interests of our investors. And that provides the methodology to how we treat investments in all jurisdictions, whether it's in Europe, North America, or other jurisdictions. And that provides consistency in terms of how we approach things.
So while economic return is clearly a prerequisite for any investment, our investment methodology does incorporate strong ESG policies. That's around, for us, for example, clean energy, sustainable energy. We have a strong portfolio of wind assets, solar assets, waste facilities, battery storage, and we're getting into hydro. And that's spread across Scandinavia, Ireland, the United States, and Canada. And so that green sustainable energy component of our investment philosophy will always be at the forefront within the parameters of the ESG guidelines.
We are a strong believer in ethical investing around labor policies and around strong governance with our partners. And in terms of our partners that we do work with, we are very excited relative to our activities with the First Nations here in Canada. The First Nations have been part of our fund since inception, and we have invested side by side with them on projects here within Canada.
- And within those, I was asking, too, if you could tell us about you've got-- and I apologize, we're a little short on time, but there is one project of First Nations, a transmission project, and another one which is an energy project in Alberta, but not your typical energy project.
- Yeah, absolutely. The project you're referring to is the operating transmission line in Alberta. It's a 35-year concession, strong availability-based revenues. And with that project, we have seven Indigenous communities as equity partners on that transaction. And we're excited about that. It provides good diversification to our investors, but at the same time, it provides generational equity benefits to the First Nations involved in that project. And hopefully, we'll take that model and replicate that in other jurisdictions within Canada. It is a strategic component of how we grow our business domestically within Canada.
The other project you're referring to is the battery generation project. We have a portfolio of assets in British Columbia, Alberta, and Saskatchewan in the energy space and in the power generation space. And we've recently entered into contracts and started construction of about 60 megawatts of battery generation in that province. And you're absolutely right, that's not something you think about relative to Alberta, but it's an important part of the greening policy of Alberta, and basically decreasing the carbon footprint as pertains to new generation.
- So Jeff, what kinds of investor should be thinking about infrastructure?
- Yeah. For those investors that have a desire to get in the alternative space, obviously infrastructure is a very clear choice for those type investors. Long-term predictable returns, a balanced portfolio, both domestically and globally, and really a focus on green investing that's going to be sustainable for the long term. Institutional investors relative to pensions, as well as TD, we are looking to develop, bring in other investors to TD based on real assets funds. So that would be sort of the investor that we would be looking at.
- Jeff, always a pleasure. Thanks so much.
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