Paul Newfield.
As the profile, living habits, and needs of New Zealand's population changes, it is no surprise the nation's infrastructure requirements are similarly morphing.
Take the example of demographics, canvassed by Paul Newfield, Chief Investment Officer of HRL Morrison & Co. at this month's Infinz Conference.
Newfield pointed to an ageing population, rising healthcare costs, and constrained government funds as the genesis of a challenge — and an opportunity.
"That feels like a really crunchy problem to solve," he said.
"If you can solve for better outcomes for older people in a more efficient way that costs the Government less, you ought to be able to make money out of that."
Though the failure to address such shifts is often laid at the door of government, both national and local, the reality is that a significant proportion of infrastructure investment has been and will always be made by the private sector.
The ageing population was one of four "ideas that matter" driving HRL Morrison — the parent company of Wellington-based Infratil — in its investment priorities. The other three are decarbonisation, connectivity, and global mobility.
While the idea of profiting from societal challenges is often unpalatable to the public, Newfield speaks candidly about the way HRL Morrison is positioned to profit from challenges such as climate change. Importantly, it is about profiting from the solutions — with the company invested in a variety of companies providing products and services designed to reduce carbon output.
To make money out of these ideas, there are three key investment criteria according to Newfield:
1. It's got to be solving a long-term problem for our society that's not going away;
2. Then you need to find a business that has genuine competitive advantages, such as pricing power or barriers to entry, so that profit can continue to be generated from the solution to the problem; and
3. You should be able to keep reinvesting into that business as the problem it is solving grows — "a business that basically sits as a portfolio of options" rather than one that requires competitive bidding whenever you have more capital to invest.
Though renewable energy investments are a good example of where these criteria are often fulfilled under the rubric of climate change, infrastructure investors are thinking about the problem less conventionally too.
"To me, reforestation and best-practice farming — if you can get the right financial structures in place — are basically infrastructure businesses," says Newfield.
"Because what they become is long-term, government-backed contracts. We've got a team at the moment doing a lot of work on carbon farming as a potential infrastructure investment."
Despite the fact that across most developed nations the majority of infrastructure is funded by private investors, political and public discourse continues to focus on government as the genesis of the infrastructure gap; and government therefore as the solution to it.
Perhaps greater public awareness of the willingness of private investors to step in, and their ability to deliver these projects at lower prices with higher performance, is needed.
The National Infrastructure Unit's Thirty Year New Zealand Infrastructure Plan, published in 2015, said as much.
"Where possible, the Government will favour private markets for the provision and ownership of infrastructure," said the report.
"Private providers subject to the market disciplines are generally accepted as achieving greater efficiency and better outcomes."
The Government will have a role to play where there are "unambiguous market failures" or equitable interests not upheld by a market mechanism, according to the report.
But where we see infrastructure deficits, we may do better to make our first port of call an assessment of whether there are barriers to private investment.
Investors are often more focused than anyone on the societal challenges of the future: unleashing their potential can generate social benefit just as much as it delivers private profit.
• Ageing population
• Decarbonisation
• Connectivity
• Global mobility