Infrastructure, From Digital to Biomethane, Here Are The Industries Goldman Sachs Asset Management Is Focused On For The Transition
In a recent article in Milano Finanza, Matteo Botto Poala, managing director, Infrastructure, discusses key themes impacting infrastructure investing and the key areas of opportunities in the asset class.
The renewed political environment, with a shift of the centre of gravity towards the right, both in Europe and in the US, will not change the need for transition. Matteo Botto Poala, managing director and head of energy transition & circular economy, private equity, infrastructure at Goldman Sachs Asset Management, has no doubts. ‘The attitude towards energy transition may have changed, but the need and aim for decarbonisation and transition have not disappeared and remain an important element of economic policy,’ he explains to MF-Milano Finanza. He added an important concept on which policymakers will base their choices: combining decarbonisation with increased economic competitiveness. ‘The policy of the new European Commission will continue to support the energy transition, particularly where this also means increasing the economic competitiveness of our companies; at the same time I expect more pragmatism on policies, continuing to support everything that helps and supports the economy’.
In a nutshell, whether Net Zero is reached in 2050 or 2060-2070, the investments to be made remain, it will be a matter of choosing and prioritising those that are economically competitive instead of those whose cost is still too high and which will be postponed. ‘This is a time when there are many investment opportunities, in light of the need for investment in infrastructure and energy, but one has to be able to choose and discern,’ Botto Poala underlines. For investors it is a matter of selecting the best fund and then for the fund to choose the most interesting companies. The momentum for private markets is positive and, within this asset class, the energy & infrastructure area is showing the highest growth rates, with strong and interesting trends and little correlation to the economic cycle, therefore attractive risk-adjusted returns.
On this front, Goldman Sachs is one of the largest asset managers in the world, with exposure in both private markets, managing over $500 billion in alternative assets ‘Having a global and diversified platform allows us to observe everything happening worldwide and, therefore, select the best opportunities in terms of risk-adjusted returns. Specifically, our investment business is focused on value-add infrastructure and the mid-market sector, targeting companies with an enterprise value ranging between $500 million and $2 billion,’ explains Botto Poala.
This segment of the market, he adds, ‘offers, in our view, the best opportunities in origination, value creation, and exits.’ The selected sectors include energy transition, digital infrastructure, transport and logistics, and the circular economy. ‘The trends that drive these sectors and make investments in infrastructure and energy significant are the four Ds: decarbonization, digitalization, deglobalization, and demographics,’ concludes Botto Poala.
From reducing CO2 emissions to the digital push, changes in supply chains, and an aging population, these are the investment themes that Goldman Sachs Asset Management believes will perform best as they are less affected by the economic cycle.
Looking at the four Ds, there are numerous opportunities in numerical terms within decarbonization and digitalization, due to the greater need for capital and investments. Within each investment theme, there are also sub-sectors that can benefit from evolving scenarios. Consider, for example, decarbonization and the necessity for it to involve electrification, leading to renewables and, consequently, solar energy. However, there are sectors where electrification is not feasible. These are the so-called hard-to-abate sectors: ‘In this area, there are three main technologies possible — bioenergy, hydrogen, and carbon capture. We believe that bioenergy has significant room for acceleration compared to the other two macro-technologies,’ explains Botto Poala.
It is no coincidence that the American giant launched Verdalia Bioenergy at the beginning of 2023, focusing on bioenergy. In Italy, it has already completed several important deals in the biomethane sector. ‘Biomethane is an interesting sector for several reasons,’ he notes. ‘First, it is a well-established technology with a business model that still needs refining, which therefore in the short term allows higher returns that will fall over time as has happened to solar and wind power. Secondly, it has positive externalities, such as the possibility of using existing pipelines and supporting the circular economy by valorizing organic waste.’
As for Verdalia, Botto Poala concludes, ‘the goal is to invest at least €1 billion in Europe by 2026, both by consolidating existing players and developing greenfield projects.’