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Alliances, Risk, and African Investment Trends – Energy Capital & Power

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Jason B. Parker, Partner and Project Development Attorney, Hunton Andrews Kurth.

Energy Capital & Power spoke with Jason B. Parker about the recently established Alliance for Green Infrastructure in Africa, global investment trends in the modern context, and how Africa can reduce risk perception.

How will the European Union’s (EU) increased focus in Africa have a tangible impact on infrastructure development and investment?

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Initially by increasing competition for investments in infrastructure projects. European countries are already widely active on infrastructure projects across the continent, but have collectively been outspent by Chinese investments. With China purportedly pulling back on its investment in Africa, an increased focus by the EU could fill the gap. This is subject to what is happening in Ukraine, which potentially changes the dynamic. This is mainly because Russia provides large volumes of gas to Europe. Should this be reduced as a consequence of the war, then what we might expect to see, is Europe refocusing its energy – pun unintended – on finding alternate sources of gas. What does this mean for Africa? Does it mean places like Mozambique will have higher interest? Other places like Zambia and Zimbabwe could have renewed interest from the EU on commodity products? The EU’s increased focus could on infrastructure, could narrowed to gas and possibly LNG export terminals.

What role will global alliances and programs such as the Alliance for Green Infrastructure in Africa have on the continent?

A large one, as they have for the past 20+ years. What is important in 2022, is that these alliances are being led by African institutions. They are being formalized, conceptualized, and executed by African institutions, inviting European allies to the table to contribute resources, time, energy, in exchange for what will hopefully be beneficial returns for those allies.

Regarding the EU’s decision to label certain gas projects as green, will more attention be placed on developing Africa’s gas industry, or will renewables continue to offer attractive returns for green investors?

Given the war in Ukraine and Russia’s role as a large supplier of gas to Europe, there is going to be a very large focus on alternative sources of gas. I anticipate that there will be a continued investment in oil and gas and even coal, despite efforts to redirect all roads from carbon emitting technologies to renewables. Nevertheless, we are going see a more diversified portfolio with green projects and renewables for a higher percentage of the overall investment. I don’t know whether calling gas green will have an impact in Africa. I think the global LNG and commodities markets will have an impact more than anything else.

What large-scale green infrastructure projects are currently underway in Africa?

What stands out is the numerous solar projects across the continent. Solar plants between 5MW and 50MW are being built as fast as they can. What also stands out is South Africa’s trend of concentrated solar projects (CSP) being built. These CSP projects- being technically complicated – are currently not being built in high volumes around the world, but South Africa has seen some success in this area. South Africa’s projects, how they have been financed and where they have been built provides a model for other highly irradiant (i.e., very sunny) locations.

What are some of the challenges international investors may face in terms of project take-off and resilience?

You have to consider the perception premium (not a term I coined). We always say projects in Africa are high risk, that it is a difficult and risky environment, but this is a perception more than a reality. Yes, there have been civil wars and changes in governments, but that’s not to say that Europe and the States haven’t had the same. America just had an unprecedented challenge to the change in government, Brexit happened, the invasion of Ukraine, there is a litany of politically risky events occurring all over the world. But Africa, specifically, is penalized for its infrastructure investment for political risk. When I am working on deals, in order to be considered bankable they have to be structured in ways that are impervious to political risk, going as far as when a developer defaults, it still walks away with its equity and the country has to buy the project’s remnants. The perception that default risk and political risk is higher in Africa only adds to the complication of structuring deals making them difficult to get off the drawing board.

How can African stakeholders change this perception?

Firstly, dealing with credit ratings and how credit ratings are assessed. There should be more regulatory oversight in Africa to ensure debt is rated fairly, and without a perception premium. Secondly, utilizing more money from within Africa. Pensions available that should be deployable in countries, subject to appropriate prudential and other protections. Thirdly, information on the success and default of projects goes a long way. Information about projects has improved, drastically, in the past 10 years but there’s more room to grow.

What role will international companies play in Africa?

There is no way out in dealing with a globalized society and economy – from financing to equipment to training to technology transfer. These are all essential to build long-term pipelines and projects. This is global and applies equally from Cleveland to Kampala. Frankly, African countries can do a better job of leveraging the relationships sought after by EU, China, Japan, the United States, etc., and building investment pipelines on their terms.

How can African countries ensure they are both attractive and competitive for increased international company participation?

One way African countries can improve investment attractiveness is to ensure there is clear communication in terms of what the government wants to accomplish and how to plans get there, in terms of infrastructure investments. Public-private partnerships (PPP) are all the rage, as they should be. When a government establishes clear PPP regulations and policies surrounding the deployment of PPPs, and communicates to the investors and contractors, and then those governments stick to the plans, the PPP projects will have a better chance of being financed and coming to fruition. Continuity and communication is what makes a country attractive and competitive and what will make some countries stand out.

What is your 2022 outlook regarding Africa’s green energy landscape? Do you foresee an influx in new developments on the back of the energy transition?

If you had asked me five months ago, I would have a clear answer. But everything has changed over the past two years. Between COVID-19, government balance sheets, inflation, shipping costs, and war, it is hard to say what Africa’s (or anyone’s) green energy landscape will be. I can say that gas will be preeminent in the coming year despite the existential threat of climate change. Europe will have to fill a supply gap before next winter. The next year will be difficult to predict.

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Lithium Americas stock rises on GM’s $650 million equity investment – MarketWatch

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Lithium Americas Corp.
LAC,
+13.19%

stock was up 9.2% in premarket trading Tuesday after it said General Motors Co.
GM,
+8.14%

agreed to invest $650 million in the company to help develop Nevada’s Thacker Pass mine, the largest known lithium source in the U.S. Lithium Americas said the project would create 1,000 jobs in construction and 500 in operations. It would produce lithium for up to 1 million electric vehicles (EVs) a year. Lithium from Thacker Pass will be used in GM’s proprietary batteries for its EVs. “Direct sourcing critical EV raw materials and components from suppliers in North America and free-trade-agreement countries helps make our supply chain more secure, helps us manage cell costs, and creates jobs,” GM CEO Mary Barra said. Thacker Pass is scheduled to go into operation in the second half of 2026, the companies said.

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Investment funds that are moving to defensive positions, and some that are not – The Globe and Mail

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What are we looking for?

ETFs and DIY mutual funds that made notable changes to their defensive-sector exposure over 2022.

The screen

The year is off to a great start for equity investors, with most equity indexes posting single-digit gains on a year-to-date basis, perhaps fuelled by investors’ reinvigorated confidence that the world’s central banks have inflation under control. That said, a new economic environment of higher interest rates might prompt some investors to have a look at their sector exposures, perhaps allocating more to defensive sectors for risk-reduction purposes, or to more cyclical sectors if they’re bullish on market prospects. To help identify potential candidates, I thought to analyze funds that have made noticeable moves over the course of last year. To start with, I screened the Morningstar Direct database for Canadian-domiciled equity ETFs and DIY mutual funds for those that have a reasonable track record, denoted by their Morningstar Rating for Funds or “star” rating of three stars or better, implying that the initial universe performed at least as well as category peers.

I then looked at the sector allocations of each fund as they appeared at the end of 2022 and 2021. Specifically, I used Morningstar’s “super-sector” definitions to determine which funds have the largest changes in exposure to defensive sectors. Recall that Morningstar’s classification structure for stocks divides global companies into three “super sectors”: (1) cyclicals, which include basic materials, consumer cyclical, financial services and real estate stocks; (2) defensive, which includes consumer defensive, health care and utilities stocks; and finally (3) sensitive, which includes communications services, energy, industrials and technology companies. I used the change in exposure to the defensive sector over the 2022 calendar year as the sole metric to rank the list of three-star-or-better funds.

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What we found

20 funds moving into, and away from defensive sectors

Name Ticker Morningstar Category Annual Report Management Expense Ratio (MER) Morningstar Rating for Funds Total Ret YTD (%) Total Ret 1 Yr (%) Total Ret Annlzd 3 Yr (%) Total Ret Annlzd 5 Yr (%) Defensive Supersector (12M % Change) Equity Econ Super Sector Defensive % (Net) 2022-12 Equity Econ Super Sector Defensive % (Net) 2021-12 Sensitive Supersector (12M % Change) Equity Econ Super Sector Sensitive % (Net) 2022-12 Equity Econ Super Sector Sensitive % (Net) 2021-12 Cyclical Supersector (12M % Change) Equity Econ Super Sector Cyclical % (Net) 2022-12 Equity Econ Super Sector Cyclical % (Net) 2021-12
Funds Moving to Defensive Sectors:
Fidelity US Momentum ETF FCMO-T US Equity 0.32 0.3 -1.7 41.7 48.4 6.7 -30.1 31.7 61.8 -11.8 19.6 31.4
Invesco S&P 500 Momentum ETF CAD MOM-NE US Equity 0.53 2 -1.0 4.0 1.6 3.5 38.3 49.3 10.9 -11.1 36.9 48.0 -27.8 12.9 40.7
iShares MSCI USA Momentum Ftr ETF XMTM-T US Equity 0.32 3 -1.1 -0.9 4.9 29.9 46.2 16.3 -13.2 36.8 50.0 -16.5 16.8 33.3
Purpose Global Innovators ETF PINV-T North American Equity 1.23 1 4.0 -24.7 -3.8 28.8 43.3 14.5 -28.4 37.1 65.5 -5.5 4.6 10.1
CI Munro Global Growth Equity ETF CMGG-T Global Equity 1.06 3.5 -4.7 22.6 38.4 15.8 -18.4 34.7 53.1 -6.7 21.8 28.5
CI Global Climate Leaders ETF C$ CLML-T Global Equity 0.93 1.4 -3.6 21.5 39.6 18.0 -8.3 43.8 52.1 -16.4 9.5 25.9
SmartBe U.S. Quantitative Momentum ETF SBQM-NE US Equity 0.99 1.3 12.2 18.6 30.1 11.6 18.5 58.3 39.8 -36.7 11.3 48.0
Fidelity International Low Vol ETF FCIL-T International Equity 0.48 3 2.4 -1.3 -0.7 16.7 50.4 33.7 -0.4 23.8 24.2 -16.7 24.8 41.4
CI WisdomTree Intl Qual DivGrETF IQD-T International Equity 0.58 5 6.6 0.7 5.6 6.2 16.6 42.1 25.5 -4.2 30.7 34.9 -11.9 27.0 39.0
SmartBe Canadian Quantitative Mmntm ETF SBCM-NE Canadian Equity 0.08 2.4 1.7 15.1 20.3 5.2 9.4 48.4 39.0 -24.4 30.9 55.2
Funds Moving away from Defensive Sectors:
Leith Wheeler Intl Equity Plus Series B International Equity 1.59 2 6.3 -1.9 1.0 -0.8 -12.0 15.1 27.1 5.2 25.9 20.8 12.7 30.1 17.4
Invesco S&P 500 Hi Div Low Vol ETF CAD UHD-NE US Equity 0.39 2 1.6 10.2 5.4 6.1 -12.1 40.3 52.4 -3.6 22.3 25.8 16.3 36.9 20.6
Beutel Goodman North American Focus Eq D Canadian Focused Equity 1.49 4 4.4 4.8 8.7 7.2 -12.3 18.4 30.7 11.5 34.9 23.4 0.1 44.2 44.1
Fidelity US Value ETF FCUV-T US Equity 0.36 6.0 12.2 -12.9 18.3 31.3 7.4 46.4 39.0 4.6 34.2 29.6
Fidelity US Value Currency Neutral ETF FCVH-T US Equity 0.39 7.5 5.1 -13.0 18.3 31.3 7.3 46.2 39.0 5.2 34.8 29.6
Horizons NASDAQ-100 Cov Cll ETF QQCC-T International Equity 0.85 1 6.7 -4.1 0.6 -1.1 -16.2 15.6 31.8 36.8 68.7 32.0 -19.2 15.2 34.5
TD Q Canadian Dividend ETF TQCD-T Canadian Dividend & Income Equity 0.39 1 7.4 9.3 5.5 -16.7 11.5 28.2 6.6 40.9 34.4 10.3 47.1 36.8
Invesco S&P GlbexCndHiDivLowVol ETF CAD GHD-NE Global Equity 0.67 2 4.3 6.3 1.5 3.2 -18.8 33.3 52.1 5.8 22.1 16.3 11.5 39.0 27.5
First Trust Morningstar Div Lrs ETF CADH FDL-T US Equity 0.66 3.2 8.3 11.3 7.8 -19.4 31.1 50.5 9.4 45.0 35.7 10.7 22.1 11.4
Guardian Fundamental All Country Eq ETF GGAC-T Global Equity 1.05 7.7 2.4 -25.2 2.1 27.4 -20.6 12.0 32.6 -23.2 13.9 37.1

Source: Morningstar Direct | Data as of January 27, 2023

The accompanying table includes 10 funds that have shifted their exposure toward defensive sectors the most, and the 10 funds that have shifted the furthest away from defensive sectors. The table also displays fees, trailing performance, ratings and inception dates. It is worthwhile noting that the three funds that have moved most into defensive sectors (XMTM-T, FCIL-T and IQD-T) are “smart beta” products, which are rules-based in nature and do not follow the discretion of a portfolio manager. Interestingly, the three funds are exposed to quite different factors. Also noted is the fact that several smart beta products that look for exposure to dividends (such as FCUD-T, XHU-T and VIDY-T), have shifted away from defensive sectors, while RBC’s actively managed mutual funds have increased their exposure to defensive sectors.

This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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CPP Investments Anchors New IndoSpace Fund with US$205 Million Investment – Yahoo Canada Finance

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MUMBAI, India, Jan. 30, 2023 /CNW/ – Canada Pension Plan Investment Board (CPP Investments) today announced an investment of US$205 million as an anchor investor in IndoSpace‘s new real estate fund. IndoSpace is a leading real estate company in India. The investment marks the first close for IndoSpace Logistics Parks IV (ILP IV), the company’s fourth development vehicle, targeting US$600 million of total equity commitments.

Image of sites (CNW Group/Canada Pension Plan Investment Board)

Image of sites (CNW Group/Canada Pension Plan Investment Board)

This is the latest venture between CPP Investments and IndoSpace. The first joint venture, IndoSpace Core, was established in 2017 and now owns the largest portfolio of stabilized modern logistics assets in India. CPP Investments has also invested in ILP III. Following the investment in ILP IV, the partnership will exceed US$1 billion in assets.

ILP IV will add an additional 25-30 million square feet to the IndoSpace portfolio, furthering IndoSpace’s leading position in the Indian market. ILP IV will focus on India’s largest logistics real estate markets: Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, and Pune. The establishment of ILP IV follows on from the first three development funds, which have a combined total of 56 million square feet of modern logistics real estate in India.

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Hari Krishna V, Managing Director, Head of Real Estate India, CPP Investments, said, “Over the past few years, we have made numerous investments in India’s industrial space, where we see strong demand as the manufacturing sector continues to grow and the e-commerce sector matures. We are pleased to be working with our longstanding partner IndoSpace to further capitalize on opportunities in this space and believe this investment will deliver strong risk adjusted returns for CPP contributors and beneficiaries.”

Brian Oravec, Managing Partner and CEO, IndoSpace Capital Asia, said, “We are excited to extend our successful partnership with CPP Investments. CPP Investments’ commitment to ILP IV is a testament to IndoSpace’s leadership in the industrial and logistics real estate space in India. ILP IV will allow us to continue to expand our unique national network to better serve our customers. Industrial and logistics infrastructure is a key enabler of economic growth. To meet India’s aim of becoming a US$5 trillion economy by 2025, IndoSpace is excited to continue to be one of India’s key infrastructure creators.”

About CPP Investments

Canada Pension Plan Investment Board (CPP InvestmentsTM) is a professional investment management organization that manages the Fund in the best interest of the 21 million contributors and beneficiaries of the Canada Pension Plan. To build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. As per September 30, 2022, the Fund totalled C$529 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedInFacebook or Twitter.

About IndoSpace

IndoSpace (www.indospace.in) is the largest investor, developer, and operator of grade A industrial and logistics real estate in India. IndoSpace has the largest national network of 50 logistics parks with 56 million square feet delivered/under development across 10 cities. With India’s largest and most experienced industrial real estate team, IndoSpace continues to lead the development of key logistics infrastructure for India’s economic growth. For more information, visit www.indospace.in and follow us on LinkedIn, Twitter, and Facebook.

CPP Investments logo (CNW Group/Canada Pension Plan Investment Board)CPP Investments logo (CNW Group/Canada Pension Plan Investment Board)

CPP Investments logo (CNW Group/Canada Pension Plan Investment Board)

IndoSpace logo (CNW Group/Canada Pension Plan Investment Board)IndoSpace logo (CNW Group/Canada Pension Plan Investment Board)

IndoSpace logo (CNW Group/Canada Pension Plan Investment Board)

SOURCE Canada Pension Plan Investment Board

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