7 February 2017
Queensland wholesale electricity prices have had an incredibly strong start to the year with the combination of higher demand (LNG facilities + hot weather) and concentration of ownership amongst generators driving very high price outcomes. The pool price averaged approximately $200/MWH for the month of January. However, it is important to recognise that this high average was acheived through very extreme prices at particular points in time - most notably in the late afternoon.
1 November 2016
Last week Tesla made a number of new product announcements including solar tiles - that is solar PV integrated into glass roofing tiles. These are not yet available for purchase and the exact technical specifications (or cost) remain unclear. In my view, the more significant announcement was the doubling of the capacity of the Powerwall from 6.4 kWh to 13.5 KWh.
17 February 2017
One of the topics of discussion over the last week has been about the merits of coal fired vs wind generation. In our view, its time for Australia to rethink what constitutes desirable baseload and peaking generation.
2 September 2016
A common driver of returns for strong performing funds in 2015-16 was high allocations to illiquid assets. That is, property and infrastructure and to a lesser extent private equity. A common feature of these assets are very long investment horizons (often decades), high transactions costs and low liquidity. It is simply not practical – returns would be outweighed by transactions costs – to invest in these types of assets on a short term basis. While returns of these assets have been very attractive recently (as they have benefited disproportionately from the fall in bond rates and the hunt for yield) they present real challenges for funds (or member investment choices within funds) that have a shorter time horizon or have weak (or negative) net member inflows. For these funds, liquidity and investment horizon constraints can severely limit the capacity to invest in these asset classes (and, hence, participate in the recent run of strong returns). Debt investments provide a way of capturing some of these investment characteristics – most notably the liquidity premium – for constrained investors. In particular: 1. debt portfolios can be structured – through their maturity profile - to directly address time horizon/liquidity constraints; and 2. debt investments can provide meaningful liquidity premiums.
25 December 2016
In writing this introduction it feels like a lot has happened in such a short time. Despite commentators calling for economic armageddon upon a Trump victory, markets rallied. In the days to follow the ‘Trump Reflation’ trade would begin, with the Dow and S&P500 reaching all time highs. For bonds rates, the sell-off has been spectacular – the Aussie 10 year has moved almost 100 bps from 1 October to 16 December. Not even the outcome of the Italian referendum could dent enthusiasm – Deutsche Bank equity has rallied over 60%, despite no significant change in its underlying fundamentals – It’s Christmas and all is well! This quarter has seen a lot of infrastructure transactions in both the debt and equity space. In this quarter’s newsletter we have two articles, the first picks up on the recent moves in base rates and considers the relative sensitives across different infrastructure sub-sectors. The second article looks at asset allocation within Member Investment Choice (MIC) options with a particular focus on conservative options. We’d like to thank all the people that have contributed to the many topics we’ve covered this year – we certainly value and appreciate all views, and to those people who proofed particular topics we’d like to extend an extra big thanks! From the team here at Infradebt, we wish all of you a merry Christmas and a safe, relaxing break ¬ enjoy the good times that this time of year brings!
1 October 2016
Relative to the last two quarters markets have been more subdued. As Ben Hunt (of Epsilon Theory fame) aptly called it, Brexit was more of a Bear Stearns moment rather than a Lehman moment (after the initial shock, markets recovered very quickly), and as we ‘go to print’ Deutsche Bank is creating lots of noise (potentially a Lehman’s moment) and affecting debt markets in subtle, and not so subtle (e.g. Deutsche CDS) ways. The first article of this newsletter looks at the low volatility anomaly, which, whilst not directly related to infrastructure, is highly relevant to the asset class. The second article takes a look at disruption within the electricity sector, and the third provides a contemporary recap of the ports sector over the prior years.