Sadek Wahba, chairman and managing partner of I Squared Capital Advisors LLC, spoke at the 2023 CERAWeek by S&P Global conference in Houston, Texas on March 8, 2023. The global energy industry is currently facing numerous challenges including the impact of the global pandemic, shifting geopolitics, a war initiated by a major energy power, high energy prices, supply chain and infrastructure limitations, and economic instability.
The demand for infrastructure improvements is expected to increase as more people migrate to cities in the coming decades. Additionally, the next few decades are crucial in the global efforts to combat climate change. Consequently, energy efficiency will become a primary focus for builders, introducing new technologies, challenges, and investment opportunities.
According to Wahba, the infrastructure sector as a whole is on an upward trajectory. I Squared Capital, a global infrastructure management company, currently manages approximately $40 billion worth of investments in infrastructure projects across over 50 countries. Wahba, who is also a member of President Biden’s National Infrastructure Advisory Council, shared insights on how investors can take advantage of this trend.
Investing in specialized construction companies is one way to benefit from the growing demand for a new electric grid. Wahba highlights the need for revamping the entire electric grid, as power generators often face delays in connecting new energy sources due to strained transmission systems. Wahba recommends investing in specialized builders who possess the necessary expertise, training, licensing, environmental permits, and safety measures required for constructing transmission and distribution lines.
Wahba also expresses optimism towards the electrification of urban transportation. He cites New York City’s implementation of a congestion pricing plan in central Manhattan, and suggests that a wider adoption of congestion pricing could make electric urban transportation a desirable investment.
Another area of interest, according to Wahba, is the technology supporting new infrastructure growth. Wahba highlights the need for systems to measure and record road usage for congestion pricing and the implementation of payment systems. He anticipates exponential growth in infrastructure-related technology, such as digitalization, building efficiency technology, and cybersecurity.
Wahba emphasizes the importance of cybersecurity as infrastructure systems become increasingly digitized. He points out the vulnerability to cyber attacks as more technology is adopted in managing infrastructure systems such as airports, ports, and hydro plants. Wahba highlights the potential risks of hackers gaining control of critical infrastructure systems, emphasizing the urgent need for robust cybersecurity measures.
While there are opportunities to invest in fiber optic cables and data centers due to the digitization of infrastructure, Wahba notes that stock prices in these areas are already quite high due to interest in artificial intelligence and the transition to 5G mobile networks.
In the United States, the publicly traded market for infrastructure investments is limited, with most infrastructure being constructed and funded through the municipal bond market. Wahba believes that infrastructure assets should be made more publicly investable to create a market and attract capital to the sector. This would lead to increased competition, efficiency, and lower pricing for consumers. However, strong regulation would be necessary to prevent private companies from excessively raising prices if more infrastructure were to be privatized.
Wahba praises the privately owned energy sector in the United States, highlighting its sophistication and advancement compared to other countries. However, he acknowledges that the transmission grid system is not functioning optimally.
Overall, Wahba’s insights suggest that the global energy industry and infrastructure sector are facing challenges and uncertainties, but also present significant opportunities for investors in specialized builders, infrastructure-related technology, electric urban transportation, and cybersecurity.