In a candid interview on 5 February 2025, Gabriele Todesca, head of infrastructure at the European Investment Fund (EIF), shed light on the organization’s strategic approach to infrastructure investments, revealing a nuanced understanding of the market that could significantly shape development in the sector.
Todesca underscored the EIF’s flexible approach to returns, noting that target returns fluctuate between 5%-8% for conservative strategies in social infrastructure to up to 20% for riskier ventures focused on developing and growing infrastructure platforms. This tiered strategy allows the EIF to balance risk and reward, optimizing investments across various sectors and geographies.
Central to Todesca’s strategy is the concept of “policy alpha,” where the EIF leverages its commercial advantage by relying on specialist general partners rather than generalists. Specialists, with their deep sector knowledge and extensive networks, are better equipped to source and execute transactions, conduct thorough due diligence, and ultimately deliver superior performance. While Todesca acknowledged exceptions—some specialist funds fail while some generalist funds succeed—he emphasized that, on average, specialist funds outperform their generalist counterparts.
Addressing the complexities of power generation investments, Todesca highlighted the disparity in electricity prices between Europe and the US. Despite occasional negative pricing in Europe, the overall trend points to higher average prices compared to the US. This dynamic, coupled with the EIF’s focus on power generation, raises questions about potential impacts on return on investment. Todesca, however, remained optimistic, citing increased demand for electricity driven by data centers and economic growth.
The macroeconomic environment, characterized by declining interest rates, further bolsters the case for infrastructure investments. Lower interest rates make financing new projects cheaper and enhance projected returns. This is particularly beneficial for greenfield projects, which have longer ramp-up periods. As interest rates decrease, the attractiveness of infrastructure as an asset class increases, offering a stable, safe, and resilient alternative to other asset classes.
Todesca also highlighted the long-term nature of infrastructure investments, which often outlast government and corporate bonds, providing a higher yield. Additionally, many projects, particularly in the energy sector, are inflation-hedged, incorporating inflation triggers into their revenue models. This makes infrastructure investments not only a hedge against inflation but also a more attractive proposition compared to bonds, which may need to be reinvested at lower future yields.
The implications of Todesca’s insights for the market are profound. The EIF’s strategic flexibility in targeting returns could set a new benchmark for institutional investors, encouraging a more nuanced approach to risk management. The emphasis on specialist general partners could spur a shift towards sector-specific expertise, potentially reshaping the investment landscape.
Moreover, the focus on power generation, despite pricing volatility, underscores the EIF’s confidence in long-term demand trends. This could stimulate further investment in the sector, driving innovation and capacity expansion. The macroeconomic advantages of lower interest rates and the inherent stability of infrastructure investments could attract more capital to the sector, fostering growth and development.
However, the market must also grapple with the complexities of balancing short-term pricing volatility with long-term demand trends. Investors will need to adopt a more sophisticated approach to risk assessment and portfolio management. The emphasis on specialist knowledge suggests a potential skills gap that the market will need to address, possibly through increased training and specialization.
Overall, Todesca’s insights offer a compelling narrative for the future of infrastructure investments. The EIF’s strategic approach, coupled with favorable macroeconomic conditions, presents a robust case for increased investment in the sector. As the market evolves, the interplay between specialist knowledge, long-term demand trends, and macroeconomic factors will shape the development trajectory, potentially ushering in a new era of growth and innovation.
