With $1.5 trillion chasing deals, returns are compressing and bidders are paying record multiples. Auctions have become a bloodbath. It's got investors asking whether it's still possible to make 15% returns in infrastructure?
Philippe Camu, Chairman and co-CIO of Goldman Sachs Alternatives' infrastructure business thinks so.
As prices hit all-time highs, it's enough to make Goldman Sachs stay away from auction processes. Instead, his team relies on three other strategies to deliver stellar returns.
Photo: Goldman Sachs Alternatives' co-CIO of Infrastructure, Philippe Camu, on-stage at IPEM Global. Source: IPEM
One approach Goldman Sachs Alternatives' deploy is to buy public businesses during periods of market dislocation. The pandemic and war in Ukraine are notable examples. Volatility surrounding US tariffs has also created some pockets of opportunity. These rarely emerge when public markets remain benign for long periods, as was the case for much of the last decade. However, investors have to be ready to transact when public market dislocations arise, in order to successfully execute take-private deals.
Investors wishing to own the infrastructure of tomorrow are securing contracts such as PPAs or feedstock agreements, before building from the ground up. This approach creates value by building rather than buying and optimising. Renewable energy, for example, represents an attractive sector.
But the demand for new data centres means digital infrastructure is also high on the list. Securing decade-long contracts with the major AI hyperscalers before a single euro is spent can generate attractive unit economics. Camu suggests returns can be around 10%, rising to 15% or more with a modest turn of leverage.