1 00:00:03,810 --> 00:00:06,470 Sean Aylmer: Welcome to the Fear And Greed Daily Interview. I'm Sean 2 00:00:06,470 --> 00:00:10,400 Sean Aylmer: Aylmer. We talk a lot about big deals involving infrastructure 3 00:00:10,400 --> 00:00:13,139 Sean Aylmer: assets from airports and toll roads to electricity grids and 4 00:00:13,140 --> 00:00:16,310 Sean Aylmer: water projects. There's been something of a deal frenzy of 5 00:00:16,310 --> 00:00:19,430 Sean Aylmer: late with big investors led by the super funds, looking 6 00:00:19,430 --> 00:00:23,099 Sean Aylmer: for quality assets that can deliver reliable returns over longer 7 00:00:23,100 --> 00:00:26,900 Sean Aylmer: periods. Today, I wanted to find out what makes infrastructure 8 00:00:26,900 --> 00:00:30,810 Sean Aylmer: assets and operators appealing to investors and where the opportunities 9 00:00:30,810 --> 00:00:34,559 Sean Aylmer: might lie, both here and overseas. Sarah Shaw is the Global 10 00:00:34,560 --> 00:00:38,770 Sean Aylmer: Portfolio Manager and Chief Investment Officer of 4D Infrastructure, an 11 00:00:38,770 --> 00:00:42,379 Sean Aylmer: asset manager, investing in listed infrastructure companies, right around the 12 00:00:42,380 --> 00:00:45,269 Sean Aylmer: world. 4D is part of the broader Bennelong Funds Management 13 00:00:45,270 --> 00:00:46,839 Sean Aylmer: Group. Sarah, welcome to Fear and Greed. 14 00:00:47,360 --> 00:00:48,519 Sarah Shaw: Many thanks for having me. 15 00:00:49,010 --> 00:00:52,900 Sean Aylmer: So, why invest in infrastructure? Tell me the benefits of it. 16 00:00:53,280 --> 00:00:57,070 Sarah Shaw: Yeah, look, infrastructure is known as a defensive asset class 17 00:00:57,500 --> 00:01:02,290 Sarah Shaw: and as an infrastructure investor, I love the characteristics that 18 00:01:02,290 --> 00:01:05,730 Sarah Shaw: provide that defensiveness. And by that, I mean it has 19 00:01:06,000 --> 00:01:09,840 Sarah Shaw: monopolistic market positions or ones with high barriers to entry, 20 00:01:10,040 --> 00:01:13,480 Sarah Shaw: it has earnings that are underpinned by contract or regulation, it's a 21 00:01:14,010 --> 00:01:17,319 Sarah Shaw: very long dated asset which has high upfront capital costs 22 00:01:17,319 --> 00:01:21,270 Sarah Shaw: and then very low maintenance spend, and there's inflation hedges within the 23 00:01:21,270 --> 00:01:25,430 Sarah Shaw: business model. All these characteristics come together to give you 24 00:01:25,430 --> 00:01:29,280 Sarah Shaw: long term visible and resilient cash flows, which either underpin a 25 00:01:29,640 --> 00:01:33,940 Sarah Shaw: yield or growth. So that's a really attractive characteristics around 26 00:01:33,940 --> 00:01:37,120 Sarah Shaw: the asset class. But then when you couple that with 27 00:01:37,120 --> 00:01:40,780 Sarah Shaw: the fact that there's a huge and growing need for infrastructure 28 00:01:40,780 --> 00:01:45,270 Sarah Shaw: investment globally, as well as the diversity of assets within 29 00:01:45,270 --> 00:01:49,390 Sarah Shaw: the infrastructure universe, then as an asset class, it can 30 00:01:49,390 --> 00:01:52,610 Sarah Shaw: be actively positioned for all points of the market cycle 31 00:01:52,830 --> 00:01:56,220 Sarah Shaw: and for all cyclical events that the world throws at us, 32 00:01:56,220 --> 00:02:00,840 Sarah Shaw: whether they be economic, political, financial, whatever it may be, 33 00:02:00,840 --> 00:02:04,440 Sarah Shaw: you can position a defensive asset class to capture the 34 00:02:04,440 --> 00:02:08,520 Sarah Shaw: upsides and protect on the downside. And these are the 35 00:02:08,520 --> 00:02:11,900 Sarah Shaw: points around the asset class that we find particularly attractive. 36 00:02:12,450 --> 00:02:14,950 Sean Aylmer: Okay. So you talked about all different sectors and the 37 00:02:14,950 --> 00:02:17,639 Sean Aylmer: fact that sort of what you're inferring is there's diversity 38 00:02:17,639 --> 00:02:21,230 Sean Aylmer: within infrastructure, what are some of the sectors you invest in? 39 00:02:21,510 --> 00:02:25,020 Sarah Shaw: Yeah, look, I'll probably just split this into two, and the way I look at it, 40 00:02:25,020 --> 00:02:26,579 Sarah Shaw: or the way we look at it, I should say, 41 00:02:26,580 --> 00:02:31,269 Sarah Shaw: is that despite sharing these defensive characteristics that I mentioned, 42 00:02:31,550 --> 00:02:35,880 Sarah Shaw: there's two very and quite distinct and economically diverse sub- 43 00:02:35,880 --> 00:02:38,669 Sarah Shaw: sectors within infrastructure. So on the one hand you have 44 00:02:38,669 --> 00:02:41,610 Sarah Shaw: what we call " essential services," now these are your regulated 45 00:02:41,610 --> 00:02:45,480 Sarah Shaw: utilities in the power and the water space. These assets are 46 00:02:45,480 --> 00:02:49,280 Sarah Shaw: really largely immune to economic shifts, both up and down, 47 00:02:49,570 --> 00:02:52,180 Sarah Shaw: as a function of them being a basic need, as 48 00:02:52,180 --> 00:02:55,280 Sarah Shaw: well as the structure of their regulatory environment, which measures 49 00:02:55,280 --> 00:02:58,960 Sarah Shaw: returns independent of volumes. Now these are the assets that 50 00:02:58,960 --> 00:03:03,330 Sarah Shaw: are more bond proxy in nature, they're more immediately adversely 51 00:03:03,400 --> 00:03:07,310 Sarah Shaw: impacted by rising inflation and interest rates, and they're slower 52 00:03:07,310 --> 00:03:10,520 Sarah Shaw: to realise the benefits of economic growth. But at the 53 00:03:10,520 --> 00:03:14,200 Sarah Shaw: same time, they are less exposed to economic contraction and 54 00:03:14,200 --> 00:03:16,930 Sarah Shaw: they benefit from lower interest rates. So these are the 55 00:03:16,930 --> 00:03:21,050 Sarah Shaw: assets that are at attractive overweight portfolio position in really 56 00:03:21,050 --> 00:03:24,860 Sarah Shaw: depressed economic environments, as they'll offer you sort of earnings growth 57 00:03:24,860 --> 00:03:28,450 Sarah Shaw: and yield support, even in a year like 2020. So look last year, 58 00:03:29,180 --> 00:03:32,650 Sarah Shaw: the utility companies or the essential services around the world reported 59 00:03:32,650 --> 00:03:34,340 Sarah Shaw: strong earnings and strong dividends. 60 00:03:35,180 --> 00:03:36,750 Sean Aylmer: I'm going to jump in there, Sarah. So, give me 61 00:03:36,750 --> 00:03:39,450 Sean Aylmer: some examples of the regulated infrastructure asset, so is that 62 00:03:39,450 --> 00:03:42,060 Sean Aylmer: power lines, for example? Is that the sort of thing you're 63 00:03:42,060 --> 00:03:42,640 Sean Aylmer: talking about? 64 00:03:42,750 --> 00:03:46,370 Sarah Shaw: Exactly. We're talking about your poles and wires, your transmission and your 65 00:03:46,370 --> 00:03:50,810 Sarah Shaw: distribution networks, your water utilities. Here in Australia, it'd be 66 00:03:50,810 --> 00:03:55,130 Sarah Shaw: the AusNets of the world, that's just been taking out. Or around the 67 00:03:55,130 --> 00:03:57,710 Sarah Shaw: world, it'd be your big U. S. Utilities, or Europe, 68 00:03:57,710 --> 00:04:02,090 Sarah Shaw: your big European utilities, like Iberdrola or NextEra. So these 69 00:04:02,090 --> 00:04:06,000 Sarah Shaw: are the big essential service operators that are providing the 70 00:04:06,000 --> 00:04:08,480 Sarah Shaw: power that we need, the clean water that we need, 71 00:04:08,870 --> 00:04:10,450 Sarah Shaw: as a community to function. 72 00:04:10,830 --> 00:04:13,780 Sean Aylmer: And the reason they're regulated, for the listeners who don't follow 73 00:04:13,780 --> 00:04:18,150 Sean Aylmer: infrastructure, it's because government has some say over how they 74 00:04:18,150 --> 00:04:20,770 Sean Aylmer: operate and therefore they're regulated, therefore you're going to get 75 00:04:21,080 --> 00:04:23,520 Sean Aylmer: an ongoing yield or ongoing return, no matter what happens. 76 00:04:24,279 --> 00:04:28,250 Sarah Shaw: Exactly, the regulator, because they're monopolistic. So if you didn't 77 00:04:28,250 --> 00:04:32,210 Sarah Shaw: have a regulatory model in place, those monopolistic positions could 78 00:04:32,210 --> 00:04:34,500 Sarah Shaw: give them the power to charge whatever they wanted for 79 00:04:34,500 --> 00:04:37,669 Sarah Shaw: the access to what we consider to be basic goods and services. 80 00:04:38,120 --> 00:04:42,450 Sarah Shaw: So the government or the regulator limits their earning profile, 81 00:04:42,580 --> 00:04:46,489 Sarah Shaw: but also allows them an earning profile that facilitates increased 82 00:04:46,490 --> 00:04:51,100 Sarah Shaw: investment in that network or in its security of supply. 83 00:04:51,350 --> 00:04:54,100 Sarah Shaw: So it's a win- win situation. You, you know exactly 84 00:04:54,100 --> 00:04:56,910 Sarah Shaw: what you're going to earn, based on what you invest, 85 00:04:57,040 --> 00:05:02,020 Sarah Shaw: but you're capped, based on basic bill affordability, so that 86 00:05:02,020 --> 00:05:04,350 Sarah Shaw: the monopolistic position doesn't allow you to over earn. 87 00:05:04,350 --> 00:05:08,050 Sean Aylmer: Okay, so that's regulated. So, the other side? 88 00:05:08,310 --> 00:05:10,150 Sarah Shaw: Yeah, so the other side is what we call " user 89 00:05:10,150 --> 00:05:12,779 Sarah Shaw: pay assets." Now, these are your airports, your toll roads, 90 00:05:12,779 --> 00:05:16,220 Sarah Shaw: your ports, your rail operators. Now they have a 100% 91 00:05:16,220 --> 00:05:20,739 Sarah Shaw: positive correlation to GDP growth and inflation. So these stocks 92 00:05:20,740 --> 00:05:25,130 Sarah Shaw: capture GDP growth through your volumes, you know cars on roads, 93 00:05:25,130 --> 00:05:29,550 Sarah Shaw: passengers through airports, but they have an explicit inflation protection 94 00:05:29,550 --> 00:05:32,990 Sarah Shaw: through their tariff structures. So these are the assets that are really 95 00:05:32,990 --> 00:05:36,850 Sarah Shaw: well suited to strong economic growth and inflationary environments, which 96 00:05:36,850 --> 00:05:39,460 Sarah Shaw: we're sort of seeing today. So if you take today's 97 00:05:39,880 --> 00:05:44,029 Sarah Shaw: inflationary scenario, user pay assets should enjoy the perfect storm 98 00:05:44,029 --> 00:05:46,930 Sarah Shaw: over the short to medium term, and that's really low 99 00:05:46,930 --> 00:05:50,660 Sarah Shaw: interest rates to support future growth, they've got economic activity 100 00:05:50,660 --> 00:05:54,450 Sarah Shaw: flowing through to volumes, and they have an explicit inflation hedge, 101 00:05:54,680 --> 00:05:58,370 Sarah Shaw: which will combat any inflationary uptick that we are experiencing 102 00:05:58,370 --> 00:06:00,730 Sarah Shaw: at the moment. So for us at the moment, we're sort of 103 00:06:00,730 --> 00:06:03,940 Sarah Shaw: sitting that overweight in the user pay category and sort 104 00:06:03,940 --> 00:06:07,610 Sarah Shaw: of limiting our exposure to that essential services, which protects 105 00:06:07,610 --> 00:06:09,960 Sarah Shaw: on the downside or in that weaker environment that we 106 00:06:09,960 --> 00:06:11,130 Sarah Shaw: saw in 2020. 107 00:06:11,820 --> 00:06:14,450 Sean Aylmer: Okay. I mean, what's interesting here is that infrastructure as an 108 00:06:14,450 --> 00:06:17,529 Sean Aylmer: asset class is extremely diverse. So in a sense to 109 00:06:17,529 --> 00:06:19,940 Sean Aylmer: think you are investing in infrastructure, you have to look 110 00:06:19,940 --> 00:06:21,190 Sean Aylmer: well beyond that. 111 00:06:21,650 --> 00:06:23,950 Sarah Shaw: Look, we sort of had that narrow definition of what 112 00:06:24,010 --> 00:06:27,609 Sarah Shaw: infrastructure means. We really want it to provide those defensive 113 00:06:27,610 --> 00:06:30,680 Sarah Shaw: characteristics that I discussed. So for us, it really does 114 00:06:30,680 --> 00:06:34,279 Sarah Shaw: limit the sector exposure to those essential services and user 115 00:06:34,279 --> 00:06:37,839 Sarah Shaw: pay assets. However, to your point, yes, it's a global theme. 116 00:06:38,120 --> 00:06:41,120 Sarah Shaw: So we have assets all over the world, so you 117 00:06:41,120 --> 00:06:45,020 Sarah Shaw: have that geographic diversity. So our universe of opportunity set 118 00:06:45,150 --> 00:06:49,500 Sarah Shaw: at the moment, it sits around about 300 listed stocks globally. So 119 00:06:49,500 --> 00:06:52,710 Sarah Shaw: we have a huge opportunity set where we can capitalise 120 00:06:53,000 --> 00:06:56,170 Sarah Shaw: on both in- country domestic demand, we can capitalise on in- 121 00:06:56,170 --> 00:07:00,130 Sarah Shaw: country inflation, we can capitalise on in- country stimulus programs, 122 00:07:00,400 --> 00:07:03,610 Sarah Shaw: and really put together a portfolio of the best opportunities 123 00:07:03,610 --> 00:07:06,100 Sarah Shaw: globally within that infrastructure universe. 124 00:07:06,830 --> 00:07:08,349 Sean Aylmer: Okay, so I just want to ask a couple of 125 00:07:08,350 --> 00:07:11,110 Sean Aylmer: specifics. Now, the first was about interest rates and what 126 00:07:11,110 --> 00:07:13,480 Sean Aylmer: happened during COVID. Now you've sort of answered that, in 127 00:07:13,480 --> 00:07:16,270 Sean Aylmer: terms of, if you get into the regulated infrastructure world, 128 00:07:16,470 --> 00:07:19,920 Sean Aylmer: that presumably outperformed during COVID, and now that we're coming 129 00:07:19,920 --> 00:07:22,880 Sean Aylmer: out and economic growth is picking up, inflation is picking 130 00:07:22,880 --> 00:07:26,670 Sean Aylmer: up, user pay assets, perhaps are more attractive. The other 131 00:07:26,670 --> 00:07:28,720 Sean Aylmer: one I wanted to ask about was climate change and 132 00:07:28,720 --> 00:07:30,400 Sean Aylmer: how that plays on infrastructure assets? 133 00:07:31,000 --> 00:07:36,020 Sarah Shaw: Yeah, look, it's clearly a very big thematic. Look, within the infrastructure world, 134 00:07:36,240 --> 00:07:40,030 Sarah Shaw: we see four very long term key thematic for infrastructure investors. 135 00:07:40,030 --> 00:07:44,360 Sarah Shaw: One's developed market replacement spend. The second is population growth. 136 00:07:44,750 --> 00:07:47,240 Sarah Shaw: The third is the emergence of the middle class. And 137 00:07:47,240 --> 00:07:50,330 Sarah Shaw: those latter two are also driving or increasing the risk 138 00:07:50,330 --> 00:07:53,520 Sarah Shaw: of the fourth thematic, which is decarbonisation goals, and that's a global 139 00:07:53,520 --> 00:07:57,500 Sarah Shaw: goal to be net zero by 2050. That's an incredible 140 00:07:57,500 --> 00:08:02,280 Sarah Shaw: thematic for infrastructure investors. And I just point out, we have, 141 00:08:02,370 --> 00:08:05,470 Sarah Shaw: and no question, we have been part of the carbon 142 00:08:05,470 --> 00:08:11,920 Sarah Shaw: problem as we've gone through a century of industrialization, infrastructure, 143 00:08:11,920 --> 00:08:17,400 Sarah Shaw: and generation, and electricity, and transport have all contributed to 144 00:08:17,400 --> 00:08:22,060 Sarah Shaw: the carbon emissions that we now need to stem and reverse. However, 145 00:08:22,060 --> 00:08:25,520 Sarah Shaw: what I would also say is that without increased investment 146 00:08:25,530 --> 00:08:29,150 Sarah Shaw: in infrastructure, there is no chance that the world will 147 00:08:29,150 --> 00:08:33,210 Sarah Shaw: get to net zero by 2050 unless we can improve 148 00:08:33,210 --> 00:08:37,460 Sarah Shaw: the energy or electrification and make that renewable. We've got 25% 149 00:08:37,460 --> 00:08:39,870 Sarah Shaw: of carbon emissions globally at the moment, just from the 150 00:08:39,870 --> 00:08:43,900 Sarah Shaw: electricity sector. Unless we can change transport to be more 151 00:08:44,429 --> 00:08:47,900 Sarah Shaw: carbon friendly, then there's another 15% of carbon emissions that 152 00:08:47,900 --> 00:08:51,620 Sarah Shaw: won't go anywhere. So we really need to invest heavily 153 00:08:51,940 --> 00:08:56,810 Sarah Shaw: in infrastructure, in order to facilitate our global decarbonisation goals. 154 00:08:56,850 --> 00:08:59,500 Sarah Shaw: It is a little bit compounded by that emergence of 155 00:08:59,500 --> 00:09:02,120 Sarah Shaw: the middle class and the population growth, you know emerging 156 00:09:02,120 --> 00:09:05,540 Sarah Shaw: markets are coming into their fore, they're evolving, people are 157 00:09:05,540 --> 00:09:09,140 Sarah Shaw: getting access to power and roads and cars. So we 158 00:09:09,140 --> 00:09:11,420 Sarah Shaw: really want them to do that in a cleaner way, 159 00:09:11,420 --> 00:09:14,679 Sarah Shaw: at the outset, so that we aren't compounding the problem and 160 00:09:14,679 --> 00:09:18,189 Sarah Shaw: that we're facing from the developed market, industrialization over the 161 00:09:18,190 --> 00:09:22,309 Sarah Shaw: last century. So there's just a wealth of opportunity in renewable 162 00:09:22,309 --> 00:09:26,210 Sarah Shaw: energy assets, there's transmission and distribution grids need to be 163 00:09:26,210 --> 00:09:30,240 Sarah Shaw: strengthened in order to connect to that renewable energy. The 164 00:09:30,240 --> 00:09:33,240 Sarah Shaw: security of supply of the electricity sector needs to be 165 00:09:33,240 --> 00:09:37,160 Sarah Shaw: firmed up, and that includes things like batteries. We also 166 00:09:37,170 --> 00:09:40,380 Sarah Shaw: have the new technologies that our government is consistently talking 167 00:09:40,380 --> 00:09:44,410 Sarah Shaw: about such as green hydrogen or carbon capture and storage. 168 00:09:44,660 --> 00:09:47,360 Sarah Shaw: All of that is just within the electricity sector. And 169 00:09:47,360 --> 00:09:49,550 Sarah Shaw: then we move to the transport sector where we need 170 00:09:49,550 --> 00:09:53,350 Sarah Shaw: to see greener roads, whether it's materials to build them 171 00:09:53,350 --> 00:09:56,940 Sarah Shaw: or the ability to facilitate electric vehicles. We need to 172 00:09:56,940 --> 00:10:00,470 Sarah Shaw: see both our shipping and our air transport become greener. 173 00:10:01,110 --> 00:10:04,679 Sarah Shaw: So all of those elements are huge investment opportunities for 174 00:10:04,679 --> 00:10:05,800 Sarah Shaw: us as infrastructure investors. 175 00:10:06,440 --> 00:10:08,179 Sean Aylmer: Stay with me Sarah, we'll be back in a minute. 176 00:10:13,390 --> 00:10:16,479 Sean Aylmer: My guest today is Sarah Shaw, Chief Investment Officer of 177 00:10:16,480 --> 00:10:20,199 Sean Aylmer: 4D Infrastructure. Sarah, you manage two funds, the 4D Global 178 00:10:20,200 --> 00:10:23,630 Sean Aylmer: Infrastructure Fund and the 4D Emerging Markets Infrastructure Fund. 179 00:10:23,640 --> 00:10:23,670 Sarah Shaw: Yes. 180 00:10:23,970 --> 00:10:28,260 Sean Aylmer: How different is investing in emerging markets in terms of infrastructure? 181 00:10:29,380 --> 00:10:31,960 Sarah Shaw: To be honest, I would say that identification of the 182 00:10:31,960 --> 00:10:36,530 Sarah Shaw: opportunities and the risk screens remain consistent between our global 183 00:10:36,530 --> 00:10:39,790 Sarah Shaw: and emerging market strategies. You know, the definition of infrastructure is 184 00:10:39,790 --> 00:10:44,340 Sarah Shaw: the same, the expectations of industry asset and management quality 185 00:10:44,400 --> 00:10:46,960 Sarah Shaw: are the same. Where we see a different part to 186 00:10:46,960 --> 00:10:50,469 Sarah Shaw: the opportunity set is really around those thematics I just mentioned. 187 00:10:50,520 --> 00:10:52,929 Sarah Shaw: You know, the population growth that we talk about, that's 188 00:10:52,929 --> 00:10:57,309 Sarah Shaw: largely been driven by the emerging economies. That evolving middle class 189 00:10:57,309 --> 00:11:00,210 Sarah Shaw: is a huge theme that we think you can capitalise 190 00:11:00,210 --> 00:11:04,340 Sarah Shaw: on via that direct investment in the emerging markets. Very 191 00:11:04,340 --> 00:11:08,059 Sarah Shaw: simply if you take it from an individual's perspective, as 192 00:11:08,059 --> 00:11:12,610 Sarah Shaw: your wealth starts to improve, your consumption patterns change. You know, it starts, 193 00:11:13,309 --> 00:11:15,429 Sarah Shaw: I want three meals a day, then start with, I 194 00:11:15,429 --> 00:11:19,010 Sarah Shaw: want basic essential services such as clean water or indoor plumbing, 195 00:11:19,040 --> 00:11:21,530 Sarah Shaw: gas for cooking, heating, all of those things that we 196 00:11:21,530 --> 00:11:24,880 Sarah Shaw: take for granted. And then once you get those things, 197 00:11:24,880 --> 00:11:28,510 Sarah Shaw: you want fridges and TVs, which increases the use of 198 00:11:28,570 --> 00:11:32,280 Sarah Shaw: that power or increases the need for ports and logistics chains. 199 00:11:32,280 --> 00:11:34,630 Sarah Shaw: And I guess over time, you then think I want 200 00:11:34,630 --> 00:11:37,250 Sarah Shaw: a scooter or a car, I need roads, I need airports. 201 00:11:37,250 --> 00:11:41,010 Sarah Shaw: All of those sorts of things come together to provide a huge opportunity 202 00:11:41,010 --> 00:11:44,959 Sarah Shaw: set in the infrastructure space in emerging markets. And that's 203 00:11:45,250 --> 00:11:48,230 Sarah Shaw: a little bit different, but the quality of the assets and how 204 00:11:48,230 --> 00:11:50,839 Sarah Shaw: we look at the assets, it is very, very similar 205 00:11:50,840 --> 00:11:52,320 Sarah Shaw: to what we're seeing in the developed world. 206 00:11:52,660 --> 00:11:53,851 Sean Aylmer: But presumably more risk as well? 207 00:11:53,851 --> 00:11:56,620 Sarah Shaw: I may be a little bit biased, but to be very clear, 208 00:11:56,620 --> 00:11:59,550 Sarah Shaw: I think risk is not confined to emerging markets. Internally 209 00:11:59,550 --> 00:12:02,150 Sarah Shaw: we do an assessment of risk at both a country 210 00:12:02,150 --> 00:12:04,520 Sarah Shaw: and a company level, whether it's in a developed or 211 00:12:04,520 --> 00:12:08,569 Sarah Shaw: an emerging market. So across both strategies, the country itself 212 00:12:08,630 --> 00:12:12,120 Sarah Shaw: must be an acceptable investment destination before we even look 213 00:12:12,120 --> 00:12:14,580 Sarah Shaw: at stocks in that country. And there's no question, certain 214 00:12:14,580 --> 00:12:18,410 Sarah Shaw: emerging countries get ruled out on that basis. We don't 215 00:12:18,420 --> 00:12:23,360 Sarah Shaw: see them as an acceptable long term investment destination. However, if 216 00:12:23,360 --> 00:12:26,179 Sarah Shaw: you really do just focus in on the emerging markets 217 00:12:26,179 --> 00:12:28,910 Sarah Shaw: and you mentioned some of those risks that we all 218 00:12:28,910 --> 00:12:34,650 Sarah Shaw: associate with emerging markets, such as inflation, sovereign risk, all 219 00:12:34,650 --> 00:12:39,030 Sarah Shaw: of those things, emerging market infrastructure hedges a number of those. 220 00:12:39,030 --> 00:12:42,470 Sarah Shaw: So you are actually getting access to a really strong 221 00:12:42,470 --> 00:12:46,380 Sarah Shaw: domestic demand story while hedging some of the key risks 222 00:12:46,380 --> 00:12:49,400 Sarah Shaw: of emerging markets. And just to mention a couple of those, 223 00:12:49,650 --> 00:12:52,360 Sarah Shaw: that's inflation. Okay, we are going to see inflationary pops 224 00:12:52,360 --> 00:12:56,760 Sarah Shaw: in emerging markets as they evolve, you hedge it with infrastructure. Secondly, 225 00:12:56,760 --> 00:12:59,090 Sarah Shaw: I think the big other one that many people mention 226 00:12:59,090 --> 00:13:03,260 Sarah Shaw: is sovereign risk. Look emerging market governments and policy makers, 227 00:13:03,510 --> 00:13:06,930 Sarah Shaw: and I'd take this for all governments and policy makers, to be honest, 228 00:13:07,250 --> 00:13:10,530 Sarah Shaw: they have realized that they need improved infrastructure to enable 229 00:13:10,530 --> 00:13:14,250 Sarah Shaw: their economies to evolve. As they can't facilitate all that investment, 230 00:13:14,290 --> 00:13:17,780 Sarah Shaw: they are very supportive of private sector investment coming in 231 00:13:17,780 --> 00:13:22,550 Sarah Shaw: to provide the infrastructure they need. Now, while they need your money, 232 00:13:22,960 --> 00:13:26,140 Sarah Shaw: you're pretty safe that you're going to get an acceptable 233 00:13:26,140 --> 00:13:28,480 Sarah Shaw: investment return. And I would say this for any country 234 00:13:28,480 --> 00:13:30,900 Sarah Shaw: in the world, when the government doesn't need your investment 235 00:13:30,900 --> 00:13:32,240 Sarah Shaw: dollar anymore, get out. 236 00:13:32,240 --> 00:13:32,349 Sean Aylmer: Fair enough. 237 00:13:33,170 --> 00:13:35,660 Sarah Shaw: And that's not emerging market- centric, that's any country in 238 00:13:35,660 --> 00:13:39,130 Sarah Shaw: the world. While they need you, they will support you, 239 00:13:39,130 --> 00:13:42,609 Sarah Shaw: and when they don't, look for a different investment destination. 240 00:13:43,020 --> 00:13:46,270 Sarah Shaw: I just don't see that being the case within infrastructure, 241 00:13:46,559 --> 00:13:49,240 Sarah Shaw: considering the amount of money that needs to be invested. 242 00:13:49,490 --> 00:13:52,510 Sarah Shaw: I don't see that anywhere in the world, in my lifetime. 243 00:13:52,870 --> 00:13:56,179 Sean Aylmer: Sarah, the way you're talking about it, it's understandable why the big super 244 00:13:56,179 --> 00:13:59,319 Sean Aylmer: funds are buying up so many infrastructure assets, such as 245 00:13:59,320 --> 00:14:04,550 Sean Aylmer: Sydney Airport, because of the longevity, the returns, the hedging, the 246 00:14:04,550 --> 00:14:08,510 Sean Aylmer: whole lot. What's the big risk in investing in infrastructure 247 00:14:08,510 --> 00:14:11,559 Sean Aylmer: though? We've spent 12 minutes or so talking about the 248 00:14:11,559 --> 00:14:15,280 Sean Aylmer: benefits primarily. What's the big risk in infrastructure? 249 00:14:15,500 --> 00:14:16,780 Sarah Shaw: So, I'll take it to listed infrastructure, if I may. 250 00:14:16,780 --> 00:14:17,320 Sean Aylmer: Yep, yep. 251 00:14:17,830 --> 00:14:22,280 Sarah Shaw: Which is where we invest. And I think one of the bigger risks is clearly that we are 252 00:14:22,680 --> 00:14:26,150 Sarah Shaw: in equity and we will move with equity markets. And 253 00:14:26,150 --> 00:14:29,850 Sarah Shaw: we definitely saw that in COVID- 19. So the valuation 254 00:14:29,850 --> 00:14:34,290 Sarah Shaw: gap between unlisted infrastructure and listed infrastructure widen significantly during the 255 00:14:34,380 --> 00:14:38,770 Sarah Shaw: COVID-19 sell- off because the market reacted, and we believe 256 00:14:38,770 --> 00:14:43,260 Sarah Shaw: completely oversold the infrastructure assets. That to us represented a 257 00:14:43,270 --> 00:14:47,010 Sarah Shaw: significant buying opportunity. So, you do get these opportunities when 258 00:14:47,250 --> 00:14:52,030 Sarah Shaw: the market overreacts. And look, the other big risk to infrastructure per se, 259 00:14:52,030 --> 00:14:55,070 Sarah Shaw: and I mentioned that we think the government support is there, 260 00:14:55,790 --> 00:14:59,180 Sarah Shaw: but any sort of these elongated assets. You know, governments 261 00:14:59,180 --> 00:15:01,100 Sarah Shaw: are going to come and go, different strategies are going 262 00:15:01,100 --> 00:15:03,830 Sarah Shaw: to come and go, you have to weather that, you 263 00:15:03,830 --> 00:15:07,340 Sarah Shaw: know through the cycle. And the way we do that internally, 264 00:15:07,340 --> 00:15:09,880 Sarah Shaw: is that we make sure that we're really, really comfortable 265 00:15:09,880 --> 00:15:13,930 Sarah Shaw: with the strength of the judicial system in any country. So, 266 00:15:13,930 --> 00:15:16,360 Sarah Shaw: if the government wants to try and change your contract 267 00:15:16,360 --> 00:15:20,580 Sarah Shaw: or change your regulation, which is adverse to your investment profile, 268 00:15:20,660 --> 00:15:23,100 Sarah Shaw: we need to know the judicial system will uphold the 269 00:15:23,100 --> 00:15:27,580 Sarah Shaw: contract or regulation. So I would say the two big risks for us, 270 00:15:28,160 --> 00:15:32,370 Sarah Shaw: two remain. Political, political noise, political moves, you know managing 271 00:15:32,370 --> 00:15:35,730 Sarah Shaw: that environmental with social, that creates a lot of noise, 272 00:15:35,940 --> 00:15:37,890 Sarah Shaw: and the other big one for us is that we 273 00:15:37,890 --> 00:15:40,950 Sarah Shaw: do see in- cycle volatility, but is it a risk 274 00:15:40,950 --> 00:15:43,270 Sarah Shaw: or is it an opportunity? And we tend to see 275 00:15:43,270 --> 00:15:44,190 Sarah Shaw: it as an opportunity. 276 00:15:44,710 --> 00:15:46,410 Sean Aylmer: Sarah, thank you for talking to Fear and Greed. 277 00:15:46,970 --> 00:15:48,080 Sarah Shaw: Thanks very much for having me. 278 00:15:48,280 --> 00:15:51,430 Sean Aylmer: That was Sarah Shaw, Global Portfolio Manager and Chief Investment 279 00:15:51,430 --> 00:15:54,930 Sean Aylmer: Officer of 4D Infrastructure. This is a Fear and Greed 280 00:15:54,930 --> 00:15:57,320 Sean Aylmer: Daily Interview. Join me every morning for the full Fear 281 00:15:57,320 --> 00:15:59,620 Sean Aylmer: and Greed podcast with all the business news you need 282 00:15:59,620 --> 00:16:02,070 Sean Aylmer: to know. I'm Sean Aylmer. Enjoy your day.