The transition away from fossil fuels into clean energy is changing the way we produce and consume energy on a massive scale. Kim Parlee speaks with Carl Elia, Vice President and Client Portfolio Manager for Infrastructure Investments at TD Asset Management.
We talk a bit about the shift into clean energy. And I know in your circles it's dubbed the "great energy transition." Where is it having the most profound effect and impact on industries and sectors, when you take a look at the big picture?
CARL ELIA: Yeah. Thanks for having me, Kim. At the heart of this transition, it's really about the decarbonization of our activities. And so it is impacting all sectors across the board. When you look at things like building sciences, what's going on with concrete and wood innovation. Things like agriculture and dealing with methane gases. As well as the obvious one, which is transportation and the electrification of vehicles.
However, ultimately, we're not using less energy. And so, what's really happening here is the amount of generating capacity is increasing substantially. What I mean by that is, if you took every power plant in the world and measured its capacity, we need to triple that over the next 30 years. And 80% of that is really coming from wind and solar.
KIM PARLEE: When you dig in a little bit and you take a look at, specifically, clean infrastructure. And you mentioned a whole bunch of really interesting things, in terms of what's changing. I know we're in the very early stages of development. What specific opportunities are you seeing?
CARL ELIA: Yeah. I wouldn't characterize it as the early stages. I'd say more we're on a fast-moving train of a very long journey. Over the past 10 years, really, wind and solar, these technologies have matured and become mainstream. And we're seeing that again and again with new technologies like battery storage, and things like hydrogen as well.
We do believe that this energy transition is the absolute best place to invest and access growth in the infrastructure market. Ultimately, where we see the opportunities is in the mid-market. When you look at renewable energy and power infrastructure, these transactions tend to be smaller than some of the other sectors that we see.
KIM PARLEE: And let me-- I want to back up a bit, because I think it's an important point that you're alluding to, is that this fast-moving train in this huge market, that fast-moving train, a lot of it is the amount of money that's coming into this sector in terms of institutional investors. There's a lot happening.
CARL ELIA: Yeah. Absolutely, Kim. I mean, we're seeing incredible demand for the asset class in terms of private infrastructure, especially in the institutional markets, where we've actually seen a lot of capital aggregating to the largest managers. It goes back to that idea of investing in the mid-market. What we're seeing is a mismatch in the amount of demand going towards these large managers. Today, in the market right now, are more $10-billion-plus manager funds than have ever been in history. And so there's a shift in demand for larger transactions.
While if you look at the infrastructure market, over 80% of the transactions are under $500 million, which these mega managers aren't really focused on. And it's creating a lot of white space to operate in this market and create opportunity.
KIM PARLEE: I know that people are going to be watching saying, just get to the opportunity and talk about the mid-market. But I promise I'll get there. I also just want to bring up a chart because you brought a chart here showing you what the past five years of infrastructure transactions. Again, just talking about where this money is flowing from, from the big picture standpoint. What are we looking at?
CARL ELIA: Yeah, absolutely. I think this chart highlights that fast-moving train that we're already on. When you look at transactions over the last five years in the infrastructure space, by sector, you can see renewables strongly in the lead there with over 52% of the assets. And as industries seek to decarbonize, like transportation and agriculture that we talked about, we're going to see more and more renewables and energy storage, hydrogen and transmission, and other power infrastructure projects coming online to support that.
KIM PARLEE: OK. Let's get to the mid-market piece because that is, I know, where you are seeing a lot of the opportunities. Tell me a bit about, again, just what that means, mid-market. And also, specifically, I know there's a couple investments you can give us to illustrate the kinds of things you find attractive.
CARL ELIA: Yeah, absolutely. I mean, we define the mid-market as transactions and in their background, $100 to $300 million of equity. So, sort of small for infrastructure projects.
A great example of how we invest in this space is through our platforms. These are businesses that actually own and operate the infrastructure, but also have a management team in place to go out and source new opportunities and develop and build new infrastructure for our clients. Rabbalshede Kraft, our Scandinavian renewables platform, does exactly this. Currently the team is based in Sweden and operates over 250 megawatts of wind, and has another 700 megawatts to add to the portfolio.
The benefit of this approach in the mid-market is that we get local experts. When you think about a global infrastructure fund, the business of developing with permitting projects is really local. And so having these teams, within these platforms, able to execute on local M&A, finding smaller opportunities, is really important for adding a creative growth for our clients.
KIM PARLEE: And I'm assuming at the same time, not the level of competition competing for those assets, with the big institutional money coming after them.
CARL ELIA: Exactly.
KIM PARLEE: How do retail investors access this space? Because we talked about institutional money coming in, it's hard. For people to be able to-- it's hard in any type of private infrastructure to be able to access this kind of thing.
CARL ELIA: Yeah. I think, to date, private infrastructure has largely been an institutional asset class. But we are seeing it evolve in the market. Historically, the only way retail investors could really get into infrastructure was through publicly listed projects and entities. And that doesn't bring the same diversification and other benefits that the private direct access to infrastructure does.
So what we're seeing evolve now are hybrid structures that combine publicly listed entities with private infrastructure to give retail clients the liquidity that they need as they enter different phases of their life and need that liquidity. And so at TD, for example, we do have a number of mutual funds that actually have exposure directly to our infrastructure fund, as well as we do have a hybrid fund called "The Real Asset Gold Fund Trust."
KIM PARLEE: Carl, thanks so much for joining us. Appreciate your time.
CARL ELIA: Thank you very much, Kim.