Dan Buchanan: Welcome to the latest in our Aberdeen Standard Investments closed-end fund podcast series, where we catch up with our closed-end portfolio managers and gain some perspective on these complex market conditions. Today, we are focusing on global infrastructure with the managers of the Aberdeen Global Infrastructure Income Fund ticker ASGI, Josh Duitz, and Ryan Sullivan. Welcome Josh and Ryan.
Josh Duitz: Good morning, Dan.
Ryan Sullivan: Dan, how are you?
Dan Buchanan: And happy spring. Ryan I'll start with you. Would you please give us your take, both private and public, to begin on the current global infrastructure space in particular, how do you see the recent US Stimulus package affecting infrastructure investments?
Ryan Sullivan: Yeah, thanks Dan and thanks everyone for joining today. Maybe stepping back as Josh and I think about the global infrastructure landscape, as we think about our kind of four broad areas that we cover within ASGI. We continue to see two kind of sub sectors, if you will, still very much being growth oriented that would principally be in the utility space of which we have an overweight into areas like renewable power, as well as the communications infrastructure space. As we've chatted about on previous podcast, the whole move from 4G to 5G and the real need to decentralize that infrastructure and the capital investment that will be associated with that. Frankly, we continue to see those two segments broadly continue to grow very rapidly. Renewable penetrations continue to come onto the grid. As we think about the US stimulus package, again, when Josh and I think about making investments, it is not predicated on stimulus packages getting approved. But frankly, those two areas will likely continue to benefit from increased government spending in those particular areas. But all in all, the thesis there still very much kind of remains intact in our view, we have exposure across the public and private landscape in those areas and expect it to be a really key focus of ASGI moving forward.
The other two sub sectors, frankly, we're a little bit more directly impacted by COVID and those are, broadly speaking, the transportation segments, and the energy infrastructure landscape. We obviously have a very much an underweight position to energy infrastructure, but do have some exposure there. I think the biggest take away over the last couple of quarters is, as we've seen the vaccine rollout albeit to a varying degree across geographies, those types of more kind of economically sensitive assets or whatever I would call it, have really seen an acceleration in value, right? Think about the transportation kind of infrastructure equity space went on a very nice run, as we saw that the vaccine rollout really starts to take hold into kind of late Q4 into Q1 of next year. And so as we think about having a good balanced portfolio across the broad sub sectors that we cover, and then importantly, across both the public and private kind of landscape, we continue to feel like this is a very interesting time to be in the infrastructure space. Again, the stimulus package will garner a lot of headlines, we'll see if this package is the one that ultimately kind of make it through the various approval processes. But ultimately, kind of outside of that we continue to think that this is a really unique time to be investing in the global infrastructure landscape. And I'll be at varying dynamics across the four major sub sectors that we invest in.
Josh Duitz: It's interesting on this path, this last stimulus package was a 1.9 trillion, there was only a very small amount allocated towards infrastructure, which was about 17 billion for infrastructure, but then another seven and a half billion for broadband spending.
So and now the next big pack, so we don't know if it's going to be passed or the size of it. But the number that's being talked about is 2 to $4 trillion dollars. And if we look at a guidepost of where that spending will be, we look at where the democrats have passed a big infrastructure bill in June of 2020, where they allocate it. Traditionally, people think about infrastructure as roads and bridges, and rebuilding those and airports. And there's still quite a bit of spending allocated in that last bill for Highway Safety infrastructure. But as Ryan mentioned, two areas that are newer, and we're seeing more and more focus on more spending. And that bill, again, the new bill might be totally different. There was quite a bit of spending, both for broadband infrastructure and the clean energy grid. And we think any new infrastructure plan will also focus on those two areas.
Dan Buchanan: Right, thank you. Josh, let's move on to the mood of companies that you're speaking with. If you could comment about your experience globally, with Aberdeen's Exposure and Research offices around the globe, what is the mood among company and management that you're speaking with today?
Josh Duitz: So it's very hard to generalize to say the mood of management across different sectors and regions are all the same. So I will break it down by sub sector as Ryan did earlier on when we speak to companies in the renewable space and utilities, they're extremely excited about the opportunity to act and more importantly, we've talked about on past podcast about, for instance, the European stimulus package last year, which was the largest stimulus package and it’s a master plan, and a focus on green energy. It's great to talk about these macro themes. But now what we're seeing from the companies in late 2020, and early 2021, these companies are actually up. They’re increasing their guidance, and annual growth potentials for renewables. And we've seen companies increase their renewable growth, two and a half to four times. So really, you're now seeing them on the bottom up, so those companies are clearly positive about the future, and seeing many more opportunity on the renewable side.
Again, moving to the communication side, and the tower network, since we last spoke, in the last podcast, another large portfolio of towers was sold in Europe, the Hutch portfolio sold to CellMax, and just recently, Vodafone IPO-ed their tower portfolio through Vantage. So seeing that trend continuing and seeing the opportunity and the way that companies describe the 5G opportunity, is that that is not happening tomorrow, or it's all going to happen. But as we've seen in the past, as we moved from 3G to 4G, and 2G to 3G, this is a decade long process. So we're going to have incremental growth from that over the next decade. So again, it might not happen tomorrow, but it is happening. And it is increasing. So when I say not by tomorrow, it's not all happening tomorrow but incremental growth is happening. And the opportunities both for organic and inorganic growth are happening in Europe. So those two sectors, the companies are clearly positive for the long term growth. And both believe we are in the very early stages of a long decade long growth opportunity, at least, and for renewable, that's probably a multi decade opportunity.
On the transportation side, companies are still just cautious because they don't know when economies are going to open and the airport sector, nobody really knows when traffic is going to resume, we are seeing indications that people are more willing to travel and have more plans to travel over the next six months, but so much is going to depend on the new variants and the vaccinations of people globally, in order to travel on airports. So they're still cautious, and we understand that. We do believe that people will travel again through air travel. So when we find attractive valuations, we're happy to own airports and roads for the long term.
Dan Buchanan: And Ryan, from the private investment side, can you comment on mood of companies and management you're speaking with?
Ryan Sullivan: Yeah, I mean, it does echo a little bit, Dan, of what Josh was saying, on the public side, right, these broad thematic trends certainly are kind of out there as well across the various sub sectors. Maybe if I could kind of focus on the utility renewables and space, one thing we are seeing a lot more of is really people thinking about what is this energy transition mean, right, it's not only renewables on the grid with wind and solar, it’s really trying to decarbonize lots of different segments of the market. It might be dealing with how wind and solar are intermittent assets. So you need rebalancing assets, whether that be batteries or other types of assets to really help the broad grid be stable, but also reduce its overall carbon intensity.
And so I would say that's a key area of focus in the private markets today, candidly, really thinking about the energy transition side of things. How do we think about a network of EV infrastructure as an example? Right in the infill markets, on maybe college campuses or how do you really think about building out that infrastructure which supports this broader energy transition theme? And then importantly, can we come underneath that and find some unique opportunities in the lower middle market, where we can get good long term contracts, right, help build out this kind of infrastructure to Josh’s comment where we ultimately think there's some really attractive long term growth trends. But ultimately, it's a very big task to undertake. And it means a lot more than simply renewable. So I think a lot of private market sponsors out there really try to think hard about that and figure out there's some unique investment opportunities to tackle from that standpoint.
Dan Buchanan: Great, thank you, Ryan and Ryan, I'm going to stay with you on this next question. This often comes up in discussions with investors and prospective investors. It has to do with the use of leverage or gearing in a low interest rate environment, ASGI, the Global Infrastructure Income Fund. Can you tell us what the fund's current position is on the use of leverage?
Ryan Sullivan: Yeah, sure, Dan. So our position on leverage, frankly, hasn't changed. Really, since we started talking about ASGI as part of the IPO process last summer, we currently do not have any leverage on ASGI. And frankly, don't have any plans to put any onto the fund. Which again, we recognize that the underlying assets that we own do have long term stable contracts are many times linked to inflation. So we think we have some really nice protection overall from an income stream standpoint. But frankly, we're just very focused on wanting to be a good stable kind of exposure into our clients portfolios. We certainly recognize that leverage can be helpful in an up market. But in a down cycle, we certainly don't want to have to be forced to kind of liquidate any positions in order to address our own balance sheet. And so that position Dan hasn't really changed all that much we've we recognize there could be some benefits. But as we think about things and wanting to really manage ASGI for the long term investor, that continues to be what we think of as the right way to manage our own portfolio.
Dan Buchanan: Right, thank you. Josh, I'm going to move back to you and switch gears a bit, maybe along the same lines as features and benefits of the closed-end from vehicle itself. ASGI is a closed-end fund. From your perspective, as a portfolio manager, how does the closed-end fund vehicle or structure help you effectively manage a portfolio of infrastructure securities?
Josh Duitz: I think the biggest absolute benefit of the closed-end fund structure is what we're doing in this fund and trying to take advantage of it. It's given the retail investor access to private infrastructure investments, which traditionally has only been available to institutional investors. And I think that's so important, in an open end fund you cannot invest in illiquid security for a private investment because the flow, if you have a lot of income and flows, then investment becomes a much smaller part of the portfolio. And reverse if you have an illiquid investment, or a private investment, that becomes a much larger part of the portfolio when there's outflows. So we're really trying to take advantage of the closed-end fund structure by using it to invest in the private infrastructure opportunity that Ryan and his team find available. So that's the biggest advantage.
The other nice advantage of the closed-end fund structure is you don't have to worry about inflows and outflows constantly. So when the inflows, you're not chasing security and the outflows you're not, you're not constantly selling down. So it allows you to have less cash and less cash drag in the portfolio as well. So you don't need cash available for outflows. And the last advantage is allow us to try to pay a consistent and steady dividend because you don't have those inflows and outflows. So those to me are the three biggest advantage. But again, I can't reiterate, the biggest advantage of closed-end fund is the opportunity for retail investors to have access to the private markets.
Dan Buchanan: And Ryan, would you add anything else in addition to Josh’s comments?
Ryan Sullivan: So Dan, honestly, I think Josh covered it really well, I think, kind of helping to lead the private effort here and being able to put it into this type of closed-end structure we think is just incredibly unique. I think the other advantage of adding this in is we are constantly thinking about the public versus private kind of questions, right? Which is to say you should never invest in the private market unless you're going to get an alpha premium over the public side. And so Josh and I are in pretty constant dialogue as we look at private opportunities, thinking about do we have exposure on the public side, is this particular asset on the private side of things additive to what we offer the public side, should we sell down the public side to really think about the total exposure to a particular subsector that we're focused on? So I think it's not only being able to access the private, it is to be able to manage that public and private split, like is a question on a lot of investors mind, because, again, we want the private side of our portfolio to really be driving alpha to really kind of generate outsized types of returns. And it needs to be done in concert with the public side of things.
Dan Buchanan: I would agree, from investors that we speak with the access to the private investments, coupled with the public that correlate or not correlate together, that's certainly an advantage that has not been previously available to non accredited investors. So that's very important.
Ryan, I'm going to stay with you on this as we wrap up. Ryan, would you give us a point here? What would you say to clients today to give them comfort that they should invest in global infrastructure today?
Ryan Sullivan: Yeah Dan, so I think that it's a really unique environment today, right, as we sit with hopefully the COVID risk in the market with increased vaccinations globally, albeit at a different pace. Hopefully, that'll be going down a little bit. But that's not to say that these real economies still continue to need investment and be fixed. And we've seen lots of direct stimulus into these various economies globally. But one of the great benefits of infrastructure as an asset class, it can provide a great multiplier effect into economies, it can create jobs. And there's a real capital need right to fix aging infrastructure, to build out new infrastructure, like we've been talking about in areas like renewables and communications infrastructure. So I think Josh and I feel kind of more comfortable than ever, that the long term thematic trends that play in the global infrastructure space. As we hopefully come out of this global pandemic, we think it's going to be a really key element. And that's going to be a mix of public opportunities, private opportunities, if there's government aid and stimulus, we always think that's kind of icing on the cake, if you will, right. That will just help us continue to move things forward. But regardless of any of that, the broad thematic is there. And we think that the structural dynamics and the supply demand is setting up really nicely for long term kind of attractive trends in the global infrastructure theme, which again, hopefully, ASGI is a good example of that. And the portfolio that we put together we will continue to actively manage, will, hopefully continue to deliver those types of good strong returns to our clients.
Dan Buchanan: Thank you gentlemen and thank you for your insights today, and especially thank you to our listeners for tuning in. You can find out more about the fund at www.aberdeenasgi.com my name is Dan Buchanan, I am with Aberdeen Standard Investments. Do look out for future episodes.
