Glenn Freeman – Livewire Markets
A product of grazing stock, Andrew Maple-Brown's father, Robert, grew up on the land and developed a lifelong appreciation for planning and foresight. Like his father before him, the co-founder of Maple-Brown Abbott Global Listed Infrastructure is also deeply committed to discipline and character. He's harnessed these traits in establishing his business within the family enterprise, turning his obsession with infrastructure into a lucrative funds management venture.
Masses of steel, concrete and manpower are poured into the bridges, tunnels, transport terminals and utilities that drive the modern world. But the term “infrastructure” – at least for me – doesn’t stir much emotion and belies these marvels of engineering that help move, heat, cool, feed and water humankind every day.
The rather bland word also doesn’t capture the valuable role that infrastructure as an asset class plays in the portfolios of investors, especially when such projects are packaged up into “listed infrastructure” securities. So, I like to remember that these somewhat nebulous financial assets are actually built of real, tangible things that play a very real role in our lives and the global economy.
I recently spoke with Maple-Brown as part of our new Livewire Markets Top-Rated Funds series. This features Australia’s 100 top-rated funds, according to Lonsec, Morningstar and Zenith.
Infrastructure: By the numbers
- 2012: The inception date of Maple-Brown Abbott Global Listed Infrastructure Fund
- $11 billion: Total FUM of Maple-Brown Abbott, as of 31 March 2021
- 11.7%: The annual return since inception of the fund, as of 31 March.
Who is Andrew Maple-Brown…?
.... And how did he come to lead the Maple-Brown Global Listed Infrastructure fund? Maple-Brown describes his business as a “boutique within a boutique,” having been established as a standalone entity long after Maple-Brown Abbott was built by his father, Robert Maple-Brown and his business partner Chris Abbott.
Maple-Brown cut his teeth at Macquarie Group, starting in debt markets and Australian equities before landing in the department we now know as Macquarie Infrastructure and Real Assets. It was here he met his future business partners Justin Lannen, Steven Kempler and Lachlan Pike. After a few years, the team decided to narrow its focus on infrastructure and to go it alone.
“We very much believe in the asset class and wanted to tie our careers to it for the long-term, and thought the best way to do that was through a boutique structure,” Andrew says.
Winding back the clock a little further, to try and understand the infrastructure fund’s origins and define what makes Maple-Brown tick, I asked him about his background. As is often the case in the financial sector, funds management runs in his family. The co-founder of the overall firm Maple-Brown Abbott is Andrew’s father, Robert Maple-Brown. The son of a landowner and grazier, his early life on the land taught him the value of long-term thinking – skills that followed him into his professional life. Moving into funds management with Rothschild for 14 years, he then launched his own firm, alongside Chris Abbott, in 1984.
“From him, it especially reinforced the importance of discipline in investing. Dad very much believed in investing processes and in sticking to that. And in staying true to investment philosophy,” says Maple-Brown.
“He was also a very good judge of character, and I think that’s very important in investing, in terms of evaluating the management teams of companies.”
Maple-Brown also calls out his father’s humble nature, something else he also believes is crucial – and just quietly, somewhat rare – among those who manage money.
“Dad was a humble person, and that’s important in terms of over-confidence in our industry because that can be quite dangerous.”
The apple doesn’t fall far from the tree
Maple-Brown the younger seems to have inherited Maple-Brown senior’s personality traits. And when you add to this a “passion for infrastructure” that formed while working at Macquarie, the end-product is Andrew Maple-Brown and a team of nine at Maple-Brown Abbott Global Listed Infrastructure, which manages about $6 billion. The broader firm also has three other strategies: Australian equities; Asian equities and multi-asset. But it is listed infrastructure that is the apple of Maple-Brown’s eye and the focus of our recent chat.
"The number one problem"
As environmental considerations have shifted from fringe topics onto the centre of board-room tables around the world, I probably should have expected renewable energy to arise during this chat.
And yet, I was surprised that it came up so early in our chat and completely unscripted – this wasn’t a planted question or a direct query about ESG.
“Global decarbonisation, the energy transition and how that will impact what are very long-dated infrastructure assets, particularly the electric and gas networks,” is Maple-Brown’s response when asked which theme is dominating his team's thinking right now.
“The energy sector as a whole is said to be responsible for more than 70% of emissions, so it’s clearly extremely important within that energy transition. It’s a culmination of both changing forms of energy, so within the transportation sector, going from internal combustion to electrification.
“It’s also a matter of cleaning individual forms of energy. So within the electricity sector, switching from fossil fuel – coal and gas generation – to generation that is predominantly carbon-neutral, primarily through renewables.”
Maple-Brown and his team expect investment in renewables will accelerate very quickly for an extended period of time. And they’re particularly excited about the scale of the investment opportunity in transmission networks in particular. Part of this includes the massive equipment that must be built, installed and maintained in getting the power from its source – the sun or wind – into the grid and the homes and factories that need it.
“Renewables in most countries is a small proportion and a significant minority of current generation. But in terms of where the investment is going to be, it’s driven very heavily by renewables,” he says
The number one problem the renewables sector needs to solve, on a practical level at least, are the intermittency problems. At a most basic level, how do you power your TV, electric blender or stove-top when the sun isn’t shining or the wind isn’t blowing?
Some of the means to fix the intermittency problems of renewables include:
- Demand response
- Larger transmission networks to connect multiple sources of renewable generation.
It’s this last point that forms the core of his team’s focus within the Maple-Brown Abbott Global Listed Infrastructure fund.
How do you play those opportunities?
One way is by investing in some of the renewable developers, the companies that are finding the science, entering into the public-private contracts and building the assets.
Another way is through structured vehicles, which own such assets, that are starting to emerge. “But we’re a bit cautious on both of those ways,” Maple Brown says.
“Through developers, there’s a huge opportunity, but we think the returns are being competed away pretty quickly as a lot of new competition enters the space.” This also means the valuations for listed entities within this area are quite elevated, partly driven by the big trend toward ESG investing.
“The best way to play that is by investing in the regulated utilities,” says Maple-Brown. Many of the established names in traditional power distribution networks are now also the biggest players in renewable power distribution. And many of these are regulated utilities.
The fund’s largest position at present is in Duke Energy, the largest regulated utility (by asset base) in the US. Based in the Carolinas, mid-west and Florida, it has a significant amount of coal generation but is currently “aggressively retiring” many of these assets.
“They’re working out how they will become net carbon neutral by 2050. So there’s a big opportunity in companies like that to invest in renewables and solar, but also in the transmission and distribution networks,” Maple-Brown says.
“In the US, the average return on equity that is granted to a regulated utility is about 9.5%. So, for a low-risk business, that’s about 8% above their risk-free rate, which we think is a very attractive return.”
He’s confident this base rate will grow strongly for a long time and also believes long-term valuations will remain appealing.
Where are we in the investment cycle?
Taking a step back to survey the macro market environment, he notes that listed infrastructure was relatively unscathed by COVID. It’s far less economically sensitive than other sectors and many of the assets he holds are trading at or around their 15-year averages.
But listed infrastructure hasn’t benefited from the fiscal stimulus money governments have showered on other sectors. Because of this, the assets have significantly under-performed broader equities and are also trading considerably lower than comparable direct infrastructure assets.
In this context, he believes infrastructure investors sit somewhere between scepticism and optimism, “maybe somewhere around ‘cautious optimism.’”
"Natural inflation protection"
Given he spends two-thirds of our conversation on the topic of decarbonisation, it’s no surprise that environmental, social and governance is one of the two areas Maple-Brown names. He also touches on another hot-button topic: inflation.
“We try to focus on our definition of infrastructure, which is to only invest in assets with the strongest combinations of cash flow volatility and that natural inflation linkage,” says Maple-Brown. “So, our portfolio tends to have more natural inflation protection relative to the more broadly-defined infrastructure definition, such as what you’d find in an index.”
A long-dated asset offering great value
Maple-Brown names Getlink, a French company that owns and operates the infrastructure of the Channel Tunnel that connects England and France, as a company that sparks his interest.
“This is an asset with very high barriers to entry – it would be very difficult for anyone else to build a tunnel competing with that,” he says.
“We like that it has a lot of available capacity, with nearly half of its capacity remaining unused at this time,” Maple-Brown says.
He also likes its “clip-the-ticket” attributes. Because Getlink is partnered with the Eurostar railway, each passenger that pays a fee to transit via the Eurotunnel rail network is “money in the bank” for the company.
“It’s also a very long-dated, inflation-linked asset that also has very strong environmental characteristics,” Maple-Brown says, pointing to its direct competition with both airlines and ferries for cross-continental air and water traffic.
“And we think it’s attractively valued, partly because it’s been hit by major headwinds including BREXIT and COVID, but both of those are pretty short-term factors in a concession that runs out to 2086.”
If you had to invest with another fund manager, who would it be?
He names The Children’s Investment Fund Foundation, a UK-based philanthropic organisation founded and run by British billionaire hedge fund manager Chris Hohn. A registered charity with offices around the world, it partners with businesses who work in areas of maternal and child health, nutrition and education in developing nations.
“In our portfolio, we own several companies they’re also involved in and we’ve seen how they operate up-close. We particularly like their approach to company engagement,” says Maple-Brown.
“They do it in terms of having a very deep knowledge of the stocks and with very considered views, which aligns nicely with the approach we take in terms of company engagement.”
“We’ve learnt from our experiences with them and certainly respect the work they do.”
Gabbing with Grantham
“Jeremy Grantham. He’s someone who I admire in terms of his deep thinking around asset allocation and also his contrarian nature,” says Maple-Brown, when asked who he'd have dinner with if he could choose anyone.
It’s been widely reported that in 2019, Grantham - superstar founder of investment firm Grantham, Mayo and van Otterloo (GMO) - donated some 98% of his net wealth to a foundation specifically focused on climate change.
“What I’d really like to talk to him about are his current views on new, emerging energy technologies.
“And within that 98% he donated, 20% has supposedly been invested in marine technologies. He’s obviously an impressive investor with a very deep passion for this area, so I expect he’d be extremely knowledgeable on emerging technologies in this area.
“Electric utilities will ultimately be the big investors in these technologies once they’re proven, so we’re always looking for ways to get more insights into how they are progressing.”
This content is intended to provide general information only. It does not constitute advice and should not be relied upon as such. You should seek investment advice in respect of your individual circumstances.
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