May 01 2023

Infrastructure remained a safe haven for investors during a turbulent 2022

5 min read

Last year was plagued by stubbornly high inflation, geopolitical turmoil and pronounced volatility in public markets. In a year when equity and fixed income asset classes posted large negative returns, private infrastructure was a safe haven for investors, providing stable and growing cash flows, inflation protection, and rising valuations despite aggressive rate hikes by central banks.

Amid this environment, the TD Greystone Infrastructure Fund[1] generated a total annual return of 16.6% (CAD) in 2022 and has delivered an annualized return of 20.4% since its inception more than eight years ago. As of December 31, 2022, the Fund had investments worth over $16 billion.

A newly published annual paper by TD Asset Management Inc. examines the factors which contributed to the Fund's 2022 performance: diversification, focus on the energy transition and building critical infrastructure. 

Diversifying into New Sectors and Geographies

Diversification continued to be a key risk mitigation tool. As of December 31, 2022, the Fund was invested in 10 platforms and 458 underlying infrastructure projects2 that are spread across geography, sector and sub-sector.

The Fund's geographic exposure includes Canada (19%), the U.S. (46%) and Europe (34%). In terms of risk strategy, 39% is allocated to value-add projects and 61% to core projects. The Fund invests primarily in renewable energy (68%), as well as in power infrastructure (16%) and transportation (16%).

Taking advantage of softening market sentiment towards transport infrastructure, last year the Fund invested at opportune pricing in two sea port platforms – Verbrugge International in the Netherlands and Port America Group in the U.S.

Verbrugge International operates three terminals that are strategically located between Antwerp and Rotterdam and facilitate the move of essential commodities such as wood pulp, bulk, paper and agricultural products across Continental Europe. Ports America Group is one of the largest port operators in the U.S. with a market share of 25% and a presence across 33 ports in the country.

Both sea port investments provide stable, growing revenue profiles and strong inflation protection. 

Focusing on the Energy Transition

The Fund remained strategically aligned with the energy transition taking place worldwide. Government and private sector commitments to decarbonization have emphasized the need for renewable energy and power infrastructure, with trillions of dollars of new investment anticipated to be required to reach current net-zero targets.

In 2022, the Fund continued to reach new milestones across its investments in solar, wind and battery storage to include assets such as Enfinite, which operates the largest fleet of battery storage facilities in Canada.

Building Critical Infrastructure through Value-add and Greenfield Projects

The Fund's “build-to-core” platform approach means that it continually has new assets coming online, as each platform engages in development and construction activities. This core-plus approach provides multiple levers for adding new long-term contracted assets to the portfolio and delivering cash flow growth and value enhancement over time. Moreover, the embedded revenue growth from the Fund's value-add and opportunistic assets has positioned the portfolio to absorb the impact of higher discount rates on core operating assets in the current rising interest rate environment. 

For more detail, including the Fund's future outlook, read the full paper here.

[1] The TD Greystone Infrastructure Fund (Canada) LP and the TD Greystone Infrastructure Fund (Canada) LP II (the “Feeder Funds”) invest in units of a master fund, the TD Greystone Infrastructure Fund (Global Master) LP (the “Master Fund”). The Master Fund invests in the allowable infrastructure investments outlined in its Investment Policy.