With CAD 119bn worth of assets under management, AIMCo is one of Canada’s largest institutional investment managers, and is responsible for the investment of pension, endowment and government funds in Alberta.
AIMCo’s Infrastructure and Renewable Resources team manage a global portfolio of more than CAD 11bn. Investments include Chilean electricity transmission and distribution company Grupo SAESA, London City Airport, and Eolia, one of the largest independent renewable power producers in Spain with close to 900 MW of installed capacity. Ahmed Mubashir, a director in the team and responsible for leading infrastructure investing in Europe, believes the key to countries securing private investment post-COVID is a funding model that better shares risk between government and investors.
“If governments want private investment to aid economic recovery post-pandemic, they will need to think outside the box and come up with innovative ways of attracting private capital to help alleviate some of the burden that is on them”, comments Mubashir.
As many nations have had to borrow to unprecedented levels to prop up their economies during the pandemic, access to private investment will be even more critical for cash-strapped public institutions delivering infrastructure over coming years; this requires finding and deploying funding and regulatory models that work for all stakeholders. He continues: “Now is the time for governments to reflect on what risks are appropriate and where.”
“The one thing infrastructure investors are after is stability”, but the COVID-19 crisis has highlighted how difficult this can be to achieve.
This isn’t a call for the public sector to shoulder the burden of the normal ups and downs of business. Mubashir believes that experienced and expert, long-term investors, like AIMCo, are well placed to take on the risks of building, operating, financing and refinancing infrastructure. These include preparing for and managing the potential impact of so-called Black Swan events, such as pandemics or extreme weather. “Operational risk is for infrastructure investors”, he says.
And it isn’t about the taxpayers bailing-out investors when things go wrong, or errors have been made. “Holding investors to account for failures is very fair – with penalties associated.”
But some policymakers’ responses to address the impacts of COVID-19 have highlighted how easily the stability of regulatory arrangements can be compromised in uncertain times. The AIMCo director cites an example where a utility regulator denied a utility the right to raise rates in accordance with accepted rate making norms last year. “The regulator, citing the impact of the pandemic, ended up saying the company could not raise rates”, he recalls.
But there are consequences to such a unilateral decision. Judgements made in the interests of the public must be balanced with the interests of the investment community, such that all parties benefit. “Long-term investors are built to weather short-term challenges, even when they relate to regulatory matters. We appreciate the toll the pandemic had on society during its peak, but as investors we are also mindful of the capital that has been invested over previous years and the pressure on the economics of the investment when those costs cannot be recovered as forecast. An investor’s ability to continue to deploy long-term capital requires a stable regulatory environment, thereby ensuring a long-term positive societal impact.”