Facing economic uncertainty? It's a challenging time for investors, but there's a secret weapon that can help: resilience. According to Tom Goossens of CVC DIF, the key to thriving investments lies in their ability to withstand the storms. Let's dive in and uncover how to build a portfolio that not only survives but excels, even when the market throws its worst at you.
With rising interest rates squeezing budgets, the importance of stable, dependable investments has never been clearer. Winning investments, as Goossens points out, are those that can adapt and grow, even when things get tough. They have operational flexibility, the potential for further growth, and the ability to pivot when faced with adversity.
But here's where it gets controversial... Traditional infrastructure is changing. The old rules no longer apply. Higher interest rates, fierce competition, and a shifting political landscape are reshaping the game. So, what sets the truly resilient investments apart in this new environment?
It's not just about the assets themselves; it's about the people behind them. When borrowing becomes more expensive, past investment decisions are quickly exposed. This is a harsh reminder that infrastructure investing is about building resilience. Successful sponsors are returning to the fundamentals: solid capital structures, strong asset bases, and top-notch management. These winning assets already have value, with clear plans for improvement.
Consider district heating, a seemingly mature market. Investors love it for its yield and stability. The best operators expand into multi-product offerings, such as energy-as-a-service, to diversify their revenue streams. CVC DIF has several such companies, including Loimua in Finland, which has expanded into industrial heating systems under long-term, inflation-linked contracts. Integrated utilities and transportation investments have also performed well due to these characteristics.
How has the changing geopolitical climate impacted the industry? CVC operates globally, navigating regional complexities with ease. Geopolitical shifts have reshaped investor preferences. For instance, Italian investments once offered higher returns than French ones, but now the risk premiums have converged. In the US, tariff, inflation, and policy uncertainty have increased scrutiny. However, deal flow remains strong in Canada, thanks to greater regulatory predictability, though currency risk remains a factor. CVC recently acquired SBA Canada, a telecom tower portfolio with operational improvement potential, targeting mid-teens IRR. The firm is also exploring adjacent geographies and sectors, including district cooling in Abu Dhabi. Investor appetite has shifted toward European assets and diversification amid policy uncertainty.
And this is the part most people miss... How has the approach to leverage changed? Before 2022, liquidity was abundant, and financing terms were looser. Discipline had to come from the sponsors. Today, leverage is approached more conservatively – lower gearing, longer tenors, and interest-rate hedging. CVC DIF prioritizes operational strength first, then financial optimization. Early years involve lower leverage to build track records before optimizing capital structures. This has resulted in strong lender interest and successful refinancings.
What about evolving and innovating in adverse markets? Adversity can come from macro challenges or overly competitive markets. In the Nordic district heating market, pricing became so aggressive that CVC DIF shifted strategy – acquiring a UK-based developer and building a Nordic-style platform in the UK. Operational flexibility enables companies to pivot; single-asset PPPs have limited ability to do so. Mid-market operators (CVC DIF’s focus) possess agility and can outperform larger incumbents.
The principles we’ve discussed will always endure: discipline in approach, creativity in execution, and the critical importance of operational excellence to create value.
How is the balance between traditional infrastructure and newer operational models evolving? Infrastructure investors increasingly understand diversified, multi-purpose operational companies. Waste management illustrates this shift: from single-asset PPP projects to integrated businesses spanning collection to recovery. Waste-to-energy now represents broader opportunities, with the market better equipped to price complexity. What was once “core” infrastructure increasingly resembles “core-plus”, with optionality and growth levers rather than added risk. Core principles endure: discipline, creativity, operational excellence, and resilience. Rooted in these, investors can navigate market cycles with confidence.
What are your thoughts? Do you agree with the focus on resilience? How do you see the infrastructure landscape evolving? Share your insights in the comments below!
