YouSaid · the spoken record

Jorge A. Gonzalez

lines on the record: 29
first: 2024-02-28
most recent: 2024-02-28
sittings or episodes: 1
sources: podcast

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“It would, I believe so. And like I said, low correlation to what happens in public markets and how public investors react to it. I think the problem there is that a lot of times these investments are large capital commitments. And when there's a lot of uncertainty, either from a geopolitical or regulatory perspective, it's hard to make an investment decision to invest a billion dollars on something if you don't feel very comfortable that the opportunity is not going to be at risk in the future.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Let me just ask one last follow up, which is, as you rightly noted, the geopolitical risk seems to be growing every day. But this is a defensive asset. Is it not an asset class that might do relatively better than other assets that are less so?”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Cases. And then the second piece is that with higher interest rates, investors cannot use low interest rate debt to boost their returns. So they really have to shift their focus to structural growth and improving performance. And so if interest rates stay high, you really need to focus on the value you can add to these type of assets and these type of businesses in order to meet your target returns.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“The two main ones would be macro, it's just geopolitical risk. We talked about this, but uncertainty in investment don't go hand in hand. It's tough to invest when there's a lot of uncertainty from a geopolitical perspective. Obviously, the temperature has been rising for the past couple of years. You started with China and the US and the trade issues, Ukraine and Russia, you've seen Israel and Gaza. If the temperature continues to rise, I think that can really become a problem in the capital can stop coming into the space or at least slow down the pace of deployment. The second one is interest rates. It's a little bit twofold. The first part of it is the refinancing. These assets have maturities that at some point will come up. If the interest rates are still very high and the credit market conditions are tight, it might be hard to refinance these assets at the same rate or even refinance it at all in some cases.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. I think it's not only all the manufacturing facilities that are being built and came with the onshoring trend that we just discussed is the supply chains that go with it, it's the jobs that this is creating. This is really a transition that's here to stay. And I don't think we're going to fully reverse on what's been done so far.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“I would say even going beyond the election and the implications of its outcome, there obviously is a tremendous focus on building domestic assets up, reshoring, and all of those trends that we have been talking about since the pandemic. So in the backdrop, is that driving investors' mentality that this is here to stay?”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Won't be able to repeal the bill by itself. It would require an act of Congress. It can reduce, it can reshape, but it can't fully repeal. The second thing is that this bill has really gathered support from the industry. And you see with the amount of investment that just came into the space, it's going to be really hard politically to completely repeal when there's so much industry support. And then the third point is that the reality is that a lot of these investments that have been announced have been in red states, in red municipalities. So I think all of these factors combined make it unlikely that the bill is repealed, but it's something that we're watching very closely this year.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. We're going into the year feeling better that we did last year with inflation being hopefully under control, interest rates expected to come down, but the election is a big thing to watch. There's half of the world population that's going to go to the polls this year. In the problem with the elections is that elections tend to breed uncertainty and investors don't like uncertainty because they tend to delay investment decisions when there's uncertainty in the market. In infrastructure in particular, the inflation reduction act is something that investors are really watching. Former President Trump has publicly stated that he would repeal the bill if he comes into office, if he becomes elected again. That's something that people are watching very closely, especially with the amount of capital that's coming into the space because of the bill. I think you need to watch it, but there's a couple of points to make on that. First of all, the present.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“And so we've talked at length about how the definition of infrastructure has evolved very dramatically over the last several years, but we are sitting in an election year here in the US, and there's many elections around the world. And, of course, this infrastructure component still comes to mind in terms of roads and bridges. How do you think the election this year will impact the sector, if at all?”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“So if you are an infrastructure investor, you have exposure to a fund and the fund is diversified. So in the same infrastructure fund, you can have a waste facility, you can have a data center, you can have a fiber to the home, you can have renewable energy. So there's a number of sectors that infrastructure funds focus on. And so you get a diversified portfolio of assets that all have very strong infrastructure characteristics, but touched on different parts of the economy in different sectors.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“And if you are looking to invest in the infrastructure asset class, how is it organized? Is it asset by asset or are assets aggregated? So do I have exposure to a wastewater facility or do I have exposure to data centers?”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“So traditionally it has been targeted towards institutional investors, but it has been opening up and there's more and more people who have access to it. Private wealth management has really caught up to it and it's an increasing part of the allocation in these infrastructure funds.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Timing both entry and exit, right, is a little bit less relevant. And that can be very difficult in other asset classes. Think about public equities again. It's very hard to time the market at times. And so that's a really good feature of infrastructure investments. The other thing that I think it's also relevant is just because of the long-term nature of these investments, the exposure to debt is a little bit better. There's less refinancing risk because these assets tend to be financed with long-term fixed rate debt and the cost can also be a little bit lower.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Now, it is more than that. And I think that even though infrastructure as an asset class has not been in the headlines as much as other asset classes such as private equity, the reality is that it has provided really stable and inflation adjusted returns, especially in the past couple of years. And there's a couple of things that are also very interesting for investors. One of them being it tends to be low volatility in low correlation asset class, especially with public equities. So it's a really good tool to provide diversification for portfolios. The other thing that I feel it's a very underrated characteristic of infrastructure is that it tends to be very long-term assets, long life economic and physical life assets. And so it tends to be a little bit of a longer holding period. And because of that,”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“So essentially, the incentives are boosting returns and therefore capital is flowing So ultimately, these government incentives are boosting the return profile of infrastructure investments so investors are chasing those returns. Are there other factors that are also boosting returns in these infrastructure investments or is this really more about this game-changing legislation?”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it is a little bit of a different approach in the US and Europe. In the US, it's very much government-enabled private-led incentive. So it's a bottoms up. You provide the incentives for private capital to come in and invest. And Europe tends to be a tops-down approach. Europe comes with a very broad framework that sets directives and goals and targets, and then companies are forced to invest to meet those targets and goals. I think another difference is that in Europe, the framework is a lot broader. And what I mean by this is that includes things not only related to energy transition, but to biodiversity and pollution, in a number of other things, the inflation reduction act is much simpler and much more targeted. And I think that really helps in unlocking. The capital faster. It's simpler to take advantage of these incentives.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. And I think public infrastructure capital from central governments, from state, from companies tends to spend most of their capital in these basic essential assets at their level. And so most of the capital in roads and bridges is spent by public entities. And then the private capital comes into fill in the gap for all the other needs that you need for economic growth and for the net zero targets. Just to give you an example, there's plenty of infrastructure capital coming into waste facility, the trash that you produce at your house has to go to a facility be treated in some cases be transformed into some form of energy, the same with the water you have at your house. How does it get to you? There's plenty of private capital going into adjacent infrastructure assets that are not just roads and bridges.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“It's not just building new assets, it's actually spending capital decarbonizing ports and transportation. Think about all the trucks and boats and planes that operate right now and how much emissions they emit. So we are seeing a lot of investments being announced. Private capital is stepping in, taking advantage of these incentives. So far, there's been, let's call it $400 billion of investment that's been announced in connection with the bill, which is, I want to say $280 gigawatts of clean power generation. Just to give you a sense of one medium-sized town in the US takes about one gigawatt of power. So it's a lot of new power generation. And there's been 100 new manufacturing facilities that have been announced, either new or expansions in the US. So there's a lot of activity happening already. I think we're going to see more of this. There's still a lot of.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Technologies that really can mitigate those two things. Battery storage, for example. That's been a lot of spend both on battery manufacturing but battery storage projects that are connected to these renewable power generation assets and can really reduce the intermittency aspect of renewable energy. Hydrogen in other forms of green molecules have seen a lot of interest in additional capital investment from the bill. Hydrogen also helps with seasonality. It can work well as long-term storage for these renewable assets, but it can also help abate emissions and decarbonize other parts of industries as fertilizers, as ammonia. There's a number of other utilizations of hydrogen. Another important point to make is that there's a lot of capital that needs to be spent to decarbonize the existing infrastructure assets.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“I'm pretty sure there's more to come, and I'm hopeful there's more to come. Although, that being said, I think we're off to a great start. The IRA is really the most supportive cleantech bill that has ever passed in the world. And what it did is that it really expanded the scope of the available incentives before the inflation reduction act, these incentives were very targeted to solar and wind. So renewable power generation. What the bill did was really expanded this to other parts of the ecosystem. And if we want to go through a decarbonization path for our energy system, we really need it to be multidimensional and not just focus on renewables. So the IRI really provided the incentives to do that. I'll give you a couple of examples. As you know, wind and solar can be intermittent and seasonal. And there's a number of”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“To give you a specific data point to put things into perspective, in 2022, the G20 countries spent about $1 trillion in infrastructure. That's about 5% of their central government budgets. It's about 1% of their GDP. The number necessary to support economic growth and to support all the environmental net zero targets that these governments have put in place is closer to $5 trillion. So there's a big gap between the one that they're spending in the five that required to be spent. And this is where private capital and private infrastructure in particular really comes into play.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Manufacturing capabilities, onshoring, nearshoring, and build the necessary supply chains to support this added manufacturing capacity. And then the final one is just demographic changes. Obviously, the population has growing, the demographics are changing, and this just requires a need for hospitals, for schools, for water treatment plants, for waste facilities. And then finally, there's been a very supportive regulatory and legislative environment that gives investor comfort to invest in the space. The inflation reduction act is a great example of that. The bill passed about 18 months ago, but Europe also with repower EU in the Green Plan for Industrialization, just creating a lot of incentives for capital to come into the space.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Be spent to support the decarbonization goals. Digitization, I think we all know it's obvious the world is becoming more digital by the second, but in order for that transformation to happen, there's a number of assets, physical assets that need to support it. In order for people to have access to high-speed internet, you need cable in the ground in order to use your cell phone. You need cell phone towers. In order to have all your data stored in cloud and processed in the cloud, you need data centers. And here AI, to bring an obvious and very hot topic, AI is only going to accelerate the demand for data centers. Deglobalization more recent one. I think one of the many things that the pandemic showed us is that supply chains are complex and very prone to single points of failure. And so there's been a trend in the past couple of years to bring some of these capabilities.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“I think it's broader than that. Obviously, inflation has helped, and the class has performed well in the past couple of years. But there's three main drivers why you've seen capital come into the space. The first one is just structural underinvestment from central governments and infrastructure. The second is very strong secular tailwinds that support investment in the space. And those, we like to call it the 4Ds, it's decarbonization, it's digitization, it's deglobalization, and it's demographic changes. Decarbonization, the important part here is just the sheer cost of it and the physical nature of it in order to reduce, remove, and capture emissions, you actually need to build or upgrade or transform assets. You can't create a software or an app that solves the problem. So there's a lot of capital that needs to”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“And so if we think about the universe of infrastructure investments today, we are seeing investors flock to it. We are seeing financial services firms buying up many capabilities in this space. So what's really driving that? You mentioned inflation. Is this really mostly about the inflation environment we've been in the last couple years? Or are there also other factors?”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“This is companies that have either a dominant market position or operate in markets where there is a strong demand, supply and balance. And so they have the ability to pass on these cost increases through their customers.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“Sure, absolutely so. These are acids and companies that provide critical services to society. So they tend to have very strong market positions. They have good downside protection. A lot of the times they're asset heavy, asset-backed. They do have predictable and defensive cash flows. Most of the times, but not always, they are able to generate a cash shield. And very importantly, that's been super relevant in the past couple of years. They have inflation protection. And that inflation protection can be achieved in a couple of ways. It can be regulatory. Think about a utility. They have the returns on their assets regulated and it's indexed to inflation. It could be contractual. That means that you're signing contracts with your customers that have some type of CPI or inflation indexation, but it could also just be pure purchasing power. And what I mean by”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“From an economical, technological, environmental standpoint, there's a number of assets that became part of the infrastructure fault. Just to give you an example, as you think about energy transition, you start including renewable assets in infrastructure as you think about digitization, you include data centers. If you ask an investor five years ago if a data center was an infrastructure asset, I think the answer would probably be no. But today it's clearly an infrastructure asset. So to answer your question, the way as an investor, I would define infrastructure is that assets and services that provide critical services to the functioning of society, they're really the backbone of the economy.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT
“And I think you're absolutely right. I think when people think about infrastructure, they think about stealing concrete. So just like you said, tolls, bridges, airports, and things of that nature. And in reality, that's how infrastructure investors thought about it initially. The fact is that the definition of infrastructure has been evolving over time. And there's a couple of reasons why that has happened. The first one, very simple reason, is that infrastructure as an asset class, it's a relatively new asset class. Let's call it 20 years old. And so it's only normal that the definition continues to evolve and investors test the boundaries of what's an infrastructure asset. The second point, which is very relevant, is that the definition has been evolving because if the changes that are occurring in society, in what I mean by this is that as societies evolve.”
2024-02-28 · Goldman Sachs Exchanges · Beyond roads, bridges, and tunnels: the megatrends shaping infrastructure investments · IDENTIFIED FROM THE TRANSCRIPT