“EIF targets different returns depending on the resources it invests in and the strategies pursued by the portfolio funds,” said Gabriele Todesca, head of infrastructure at the European Investment Fund, during an interview on 5 February 2025. “The returns targeted by the portfolio funds range from relatively low returns of 5%-8% for conservative strategies (i.e., the social infrastructure sector) to up to 20% in riskier strategies focused on the development and growth of infrastructure platforms.”

Defining the concept of policy alpha

Todesca believes that the EIF has a “commercial advantage“ to rely on specialist general partners instead of generalists, as he considers that it may be easier for them to “source and execute transactions, to have the right contacts and to do the right due diligence” on the back of a long experience.

He noted that there are studies confirming that relying on specialists “translate into better performance, on average.” Yet he admitted that “there are some specialist funds that are massive failures. There are some generalist funds that are great successes; we’ve invested in some of them.”

Power generation and return on investment

Questioned by Paperjam on the appropriateness of investing further in power generation, given that we have seen prices going below zero in some regions, Todesca replied: “on certain days in certain countries… the average prices of electricity in Europe are still much higher than in the US.”

Yet as the EIF maintains a focus on power generation and its additional supply potentially keeping a lid on electricity prices, investors may wonder whether it will depreciate their return on investment. “The long-term trend that we see, at least in the market, is there’s going to be more demand for electricity.” He reiterated that data centres, but also economic growth generally, will drive additional demand.

Taking advantage of lower interest rates

“The macro-situation is beneficial today for infrastructure investments.” Todesca takes comfort in interest rates going down in most developed markets, first as leverage becomes cheaper to finance new projects and, second, as the return on projects is expected to improve.

Declining interest on greenfield and brownfield projects are both positive for their investors, but Todesca noted that the impact of the former is greater because there is a longer ramp-up period. “You’re paying less for the capital during that investment phase--then of course your overall project return goes up.” Moreover, as interest rates are moving down, he suggested that it increases the attractiveness of the asset class relative to other asset classes largely because infrastructure offers a spread pickup over government bonds despite being considered similarly “pretty stable, pretty safe and resilient.”

Higher yields than bonds and a hedge against inflation

The investment case for infrastructure that Todesca made was that the long-term nature of these investments, which often have a longer duration than government and corporate bonds, makes the alternative asset more attractive in locking up a higher yield against an investment in bonds that must be reinvestment at a lower future yield.

In addition, he commented that many projects in the energy sector and “all sorts of sectors” are inflation-hedged as their revenue models are accounting for inflation triggers.

An alternative version of this article was written for the  to the , published on 26 February 2025. The content of the magazine is produced exclusively for the magazine. It is published on the website as a contribution to the complete Paperjam archive.

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