Energy and passenger transportation assets faced headwinds in 2020, while data/telecom, renewable power and freight/logistics showed strong performance and attracted significant private capital.
Energy and transportation, both cyclically exposed infrastructure sectors, have faced significant headwinds from the COVID-19 pandemic. However, these types of broad-brush generalizations can fail to capture a far more nuanced story, with winners and losers becoming increasingly apparent as much of the developed world emerges from the depths of the pandemic. The devil is in the details, as some would say.
‘Unprecedented’ is a word commonly ascribed to the pandemic’s effects, and the same characterization certainly applies to activity within energy sector since the start of 2020. At the time of writing, oil prices sit comfortably above levels observed at the end of January 2020, prior to the pandemic taking hold. What is lost in these numbers is the unprecedented volatility, decrease in demand and speed at which energy markets have rebalanced, having recently passed the one-year anniversary of oil prices turning negative.
On the losing end were those ill-equipped to deal with shocks due to excessive leverage, inefficient cost structures and direct or indirect exposure to price volatility. Losers included sub-scale E&Ps, refiners, as well as midstream and power assets exposed to volumes, pricing and adversely impacted counterparties. That said, sub-segment exposure matters, and our experience has shown that seemingly unlikely winners have emerged. One example is a power utility we approved in February 2020, which benefits from exposure to contracted renewable generation yet ended up thriving during the pandemic from providing ancillary services.
Speaking of renewables, despite lower input costs for a number of traditional generation assets, renewables have managed to “come of age” in the last year, with improvements in technology and cost efficiencies reaching an inflection point.
When COVID-19 took hold, the movement of goods and people came to a near halt, as governments around the world sought to halt the spread of the virus. However, following sharp initial declines, supply chains adapted to a new paradigm, with monthly U.S. port container volumes ending 2020 with year-on-year overall growth, as consumer spending shifted from services to goods. A similar phenomenon occurred elsewhere in the logistics space, with the rise of e-commerce and consumer preferences driving activity.
Transportation infrastructure assets focused on the movement of people, versus services, have been more adversely impacted by the pandemic. As a result, demand for airports, passenger aircraft, public parking facilities and public transportation was temporarily decimated. However, there are clear signs of hope on the horizon. After significant cuts to capacity at the outset of the pandemic, airlines including Quantas, Virgin Australia and Delta Airlines have recently signed agreements for additional planes in anticipation of or in order to meet strong domestic demand.
Disclosures
This presentation is not an offer to sell, or a solicitation of any offer to buy, any security or to enter into any agreement with Hamilton Lane or any of its affiliates. Any such offering will be made only at your request. We do not intend that any public offering will be made by us at any time with respect to any potential transaction discussed in this presentation. Any offering or potential transaction will be made pursuant to separate documentation negotiated between us, which will supersede entirely the information contained herein.
Any tables, graphs or charts relating to past performance included in this presentation are intended only to illustrate the performance of the indices, composites, specific accounts or funds referred to for the historical periods shown. Such tables, graphs and charts are not intended to predict future performance and should not be used as the basis for an investment decision.
The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.
As of April 30, 2021