Commentary - March 2023Foresight Global Sustainable Infrastructure Fund
Since its inception on January 31, 2023, the Fund has been fully invested in companies that own and operate physical infrastructure. In the commentary below, the Portfolio Managers review their investment focus, the case for sustainability, and the effect of tightening lending conditions on infrastructure companies.
Would you please summarize what the Fund invests in?
The Cromwell Foresight Global Sustainable Infrastructure Fund invests in public companies across the globe that are domiciled in developed countries that own and operate physical infrastructure, renewable energy or digital infrastructure assets. Importantly, each company must fit our sustainability criteria to align with the principles of the UN Global Compact and deliver a net social or environmental benefit in one or more of the following ways:
- Low carbon transition. The world is moving toward a low carbon environment, which is a fundamental transformation in the way societies and economies operate as it relates to technology, infrastructure, and policy.
- Decarbonization. Many developed countries around the world have a goal of reaching net-zero emissions by 2050.
- Positive social impact. We seek companies that provide outcomes for individuals and communities with a specific focus on high-quality healthcare and education services.
We believe these companies are positioned to succeed over time in a decarbonizing global economy.
The Fund focuses on three areas of sustainable infrastructure. What is the investment case for each real asset segment?
The Fund’s portfolio invests in three primary infrastructure areas: renewables, core and social, and digital. The case for investing in these areas is as follows:
Renewable energy - According to the International Energy Agency, electricity demand could double and potentially triple by 2050. In addition, many governments around the world have ambitious carbon reduction targets with the U.K, the U.S., the European Union, Australia and Canada committing to achieve net-zero emissions by 2050. To reach these targets, the global investment in clean energy generation including wind, solar, hydro, and batteries is projected to total approximately $35 trillion by 2050.
Core and social infrastructure – By 2040, over $4 trillion needs to be invested in core and social infrastructure for a growing population and upgrades, according to the World Bank. To complete these public infrastructure projects, a considerable amount of this investment needs to be funded by private capital. Many of these partnerships between private companies and governments have long-term contracted revenues.
Digital infrastructure – With 5G mobile subscriptions forecast to reach 5 billion people by 2028, there is a growing need for denser infrastructure to support the growing use of a 5G network. In addition, mobile data traffic is expected to grow exponentially.
As of the end of the first quarter of 2023, the Fund was invested approximately in 40% renewable companies, 40% core and social infrastructure, and 20% in digital infrastructure.
How could tightening lending conditions affect your investment candidates?
Following the banking crisis that unfolded in the first quarter of 2023, lending standards are expected to tighten. In anticipation of these tighter credit conditions, we have heightened our focus on companies with management teams who have deep experience in finding resourceful ways to access the capital markets, if needed. We particularly like those companies that have solid banking relationships and various access to credit.
In addition, companies with infrastructure assets have other financial and operating solutions available to them. They can divest lower yielding assets and reinvest the proceeds in higher yielding assets or they can engage in joint partnerships with large, institutional investors.