AIMCo's Ben Hawkins Talks Infrastructure, Transition Investing and More

Last Thursday, I had a chance to talk to Ben Hawkins, Head of Infrastructure, Renewables and Sustainable Investing at AIMCo.

I contacted AIMCo and asked to talk to Ben following my recent post on AIMCo expanding its ownership in Howard Energy Partners. 

It was a pleasure talking to Ben and I want to begin by thanking him for taking some time to talk to me and also thank Sabrina Bhangoo for setting up this Teams meeting. 

Ben began by giving a little background on himself:

I've been at AIMCo for a long time. I actually joined its predecessor about six months before it came into exclusivity. I worked research, worked in power plants (buying and selling) and gained other exposure in other areas within infrastructure including water. I really came to AIMCo to develop their direct deal capabilities. I had experience in a couple of specific verticals and basically joined just prior to the 2008 financial crisis which was an interesting to join. It made us a lot more creative in terms of our approach, did some interesting transactions which helped set the course for the team.

We've built things up pretty dramatically since then. The assets I'm responsible for have grown 15-fold so we've grown quite a bit. We just had a handful of people when I joined and we are probably ten times that from the people standpoint.

I interjected and asked Ben how much of AIMCo's infrastructure investments were fund investments and how much were direct when he first got there and what are the numbers now. He replied:

We're over 90% direct right now. We do have some fund relationships, especially in sectors or markets where we are not well positioned to do direct deals. Asia would be a great example where we rely on fund investments. When I joined, we were hoping to move to 50:50 (funds vs direct deals) but we were well under a quarter of direct deals at that time. There's been a lot of growth in direct deals since then.

Ben went on to discuss his background and his role:

I guess I've been in the role as Head of Infrastructure since June 2014. The role has evolved include being in charge of Sustainable Investing. I've been a big advocate of really looking to responsible investing and ESG integration as providing insights for the investment teams. So really pushing the perspective that we are a long-term investor, it isn't necessarily really a tradeoff between thinking of ESG considerations and creating value over the long run. If we are ignoring stakeholder issues, that invites policy responsibility and can really impact the bottom line. We are really trying to bring that as close to the investment process as possible and I've been tasked for taking that on. It's relatively early in that journey but we've already made some success in terms of pushing that to teams bringing that a lot closer than it has been historically. 

I told Ben that when AIMCo releases its next Responsible Investing Report, I'd love to talk to him about that just as I was getting ready to talk to PSP's Herman Bril on their 2022 Responsible Investing Report right after my discussion with him.  

I told him there's a big misconception that because AIMCo hasn't divested out of oil & gas, it doesn't take responsible investing seriously, and that is the furthest thing from the truth. He replied:

100%. I can answer this and then segue into Howard Energy Partners as the two are certainly related. We thought about this from the standpoint of not doing what others have done. We view the whole climate issue as something that drives value as opposed to being a values driven exercise. That said, going back to earlier comments, we see a lot of alignment between good ESG practices and how to reduce climate risk as adding value over the long run. As far as divestment in particular, we don't see divestment as strictly the answer to it, just what we think is the impact on the investment landscape from policy changes that are coming that will have profound implications not just within energy but more broadly. Investors frankly aren't thinking of this enough and divesting is an easy way to feel some of these issues have been addressed. Divestment because it is relatively superficial in its approach can be costly, it can lead to missed opportunities and lead to unintended consequences. Target driven promises --- and Evan (Siddall) has talked about this -- which are short on details and largely assume away how net zero commitments will be achieved aren't the answer either. 

Now, the characterization of it is like writing a check but you don't know how to cash it. We think we should look for opportunities that will have a tangible impact and decarbonize companies with a less than ideal carbon profile. See that as providing value but also providing a much better view on what targets are achievable under what time frames. It's important, we take it very seriously but we try to be a lot more deliberate about it than doing what others have done. 

I interjected and asked Ben on that point to tie it back to the Howard Energy acquisition and how that is a good case study of AIMCO adding value by decarbonizing their operations:

Sure, you've got great timing because that's exactly where I was going. Rather than divesting, for us what makes sense is to lean in and work constructively with companies to essentially help them decarbonize and unlock value that might otherwise be compromised by carbon risk.

Howard Energy is a great example of that. We started or relationship with them back in 2016. There have been a couple of transactions where we increased our stake through time (it now holds 87% of Howard Energy). In 2017 was the first time we took an equity interest. 

 Let me start with the big picture and then get to energy transition part of it. We really had a positive view of Mike Howard and Howard Energy right from the beginning. He's really impressive, had the ability to deliver on improving growth, a track record of success through good times as well as bad times, including the pandemic where we had negative commodity prices for a short period of time.  Really solid performer and they are positioned well for success going forward. 

Importantly, with respect to energy transition, we think they're positioned well to be an energy transition platform to a certain extent, either their existing capabilities or some of their asset relationships and the like, position them well to start interacting with their counterparties and start working on real world energy transition projects that drive value. 

We actually had Mike Howard speak to our clients n ESG integration. On climate in particular, he's a big believer that energy is tied to standards of living, taking people out of poverty, and he's a true believer that we need to find ways to decarbonize energy and keep it affordable to drive the positive impacts that we've seen in terms of having affordable energy but being able to future-proof that going forward.

In general, they take this quite seriously, they were recently awarded a five-star ESG rating from GRESB. In terms of the energy transition part, they've had some notable successes. In Port Arthur, they have a renewable diesel logistics facility. In six Corpus Christi refineries they attract CO2 from off gas to produce low carbon hydrogen. 

Another key project which really demonstrates how we think they can be important is the Nueva Era pipeline between the US and Mexico which displaces something like 8 to 11 million tons per year of CO2. In my rough math that's equivalent to shutting down three relatively large coal-fired power plants. Hard energy really builds around natural gas which we see as a key transition fuel. We really see it as complement to intermittent renewable energy generation. That's certainly the case in the US but also more globally, we're seeing that phenomena drive LNG exports which also benefits Howard Energy.

Our value add component is working with the Howard team, having along term perspective, willing to provide capital into these areas, Sometimes they're relatively bespoke projects, just requiring us to roll up our sleeves and understanding the opportunities. The partner we had in the business, they're a good partner but it's a closed end fund and as they get closer to the end of their life, they're not in a position to support future growth so we stepped into their shoes and are taking that long-term perspective and really articulate how this is an energy transition platform. 

I told Ben if this energy transition platform takes off, it can be a big driver of growth for Howard Energy Partner sin the future. 

He agreed:

I think that is well characterized. It's very similar to how we are thinking about it. They have a core business where they are able to take some of those capabilities and relationships and have access to some of the assets which can be dual purposed or repurposed and that provides really an edge relative to trying to start this from scratch.

In terms of success, we are potentially only seeing the tip of the iceberg. The Inflation Reduction Act provides $370 billion in various incentives for green projects including carbon capture. Howard Energy is potentially well positioned to take part in that. Sometimes the magnitude of that type of incentive coming into the market can create a gold rush. We think the capabilities of company and team really position them well to benefit from the immense amount of activity which is going to take place in the US because of the Inflation Reduction Act.  

I told Ben if large institutional investors do not engage this industry, it will be next to impossible to attain the Paris Accord climate related goals.

But I stated the transition economy is still evolving and there is no consensus on the right path forward as it won't be linear. 

I also mentioned AIMCo's recent strategic investment in Tidewater Renewables which is working on renewable fuels. 

He relied:

We see renewable fuels as an important part of the decarbonization effort that be effective right now. To your point, nobody knows the right path forward. We deal with that uncertainty by looking for partners which have capabilities in their respective disciplines, their field and really have multiple irons in the fire where the underlying investment is interesting to us but where there is a broader strategic value as things unfold, it's clearer which direction things will go, there's an ability to really scale up and really leverage that capability. I'm a firm believer that it's not one technology take all, it's likely going to be a myriad of technologies. That makes it more difficult to figure out what to focus on and if we're going to be really active in this space, we have to be really conscious about ultimately managing this uncertainty and being able to capitalize once this uncertainty is resolved and be able to deploy in scale, ultimately trying to get in before others do. We often talk about the risk of being early versus the risk of being late and this is one place where there's a real risk of being late and be behind the curve in general if others are proactive. You alluded to this, all the Maple Eight think the same way but we all approach it in different ways. 

I told Ben that AIMCo being based in Alberta gives in a big advantage to see which are the emerging technologies in the energy field including renewable energy.  

He told me having strategic relationships with funds is really valuable, having access to their broader franchise and their ability to advance energy transition projects, not to mention the ability to learn from them and added:

To your point of the talent that exists within the province, that's exactly right. There's an ecosystem of energy related companies, some of them traditional, fossil fuel related, but some of them much more on the renewable side. A number of my team members, we were able to extract from these energy companies and bring their capabilities to bear which has been really helpful in terms of how we think about various opportunities and being able to pick up the phone and tap the network right in our backyard. It has been quite valuable, whether it's looking at something closer to home or looking at something down in the US like Howard Energy.

I asked Ben a final question on AIMCo's total infrastructure portfolio and where the focus will be, where they're shifting their focus to:

It's a good question. Two areas where we have been most active right now are digital infrastructure and renewables. There's just immense activity. There's a lot of capital pursuing both of those so we're pretty selective and making sure we're ultimately getting paid for the risk we take. Those are areas where we see a huge amount of growth despite the rise in interest rates, there are tailwinds supporting both those areas. 

 see core assets as very defensive especially since the Fed continues to raise interest rates. We look to these core assets to weather pretty significant hits. We do move up the risk spectrum to ultimately get to our return profile but on balance it achieves what our clients are looking for. This isn't anything new since if you asked me a year ago, I'd give you a similar answer but the context has changed as we have rising rates. 

In terms of geography, Sabrina and Ben told me they haven't opened their office in Singapore yet but Ben said:

Asia is an important market for us, within infrastructure, I think we have about $1 billion invested there. We're pretty diversified globally. A large proportion of our assets are in the US but also Europe, Australia, Chile and Brazil. The market that has been most frustrating for us has been Europe. It's a tough market, cost of capital, there is some aggressive bidding in certain situations in Europe which makes it very difficult to get the exposure that we would otherwise desire.

I asked Ben if other than strategic partners, do they partner with Maple Eight pension funds in infrastructure:

Absolutely, we are partners with CPP Investments in Brazil on a water utility and partnered with all the Maples on deals. The interesting thing about strategics is they can bring capabilities to the table we don't have the alignment is going to be the same as they're potentially making money in ways that we aren't and that's not always ideal depending on the circumstance. We value the fact5 that we can have the right partner for the right situation so sometimes that's partnering up with a CPPIB or Ontario Teachers' and sometimes that's partnering up with a renewable platform in the US like ADS Clean Energy where we complemented each other to drive value in the underlying business.  

Alright, let me wrap it up there.

I thank Ben for taking the time to talk to me and providing such valuable insights to my readers.

And let me remind my readers you're not going to find these interviews and insights anywhere else so please take the time to support my efforts on the top left-hand side under my picture. I thank those of you who support the work that goes into these comments.

Before I forget, Evan Siddall, CEO of AIMCo, told Barbara Shecter of the National Post the pension giant is interested in participating in the Canada Growth Fund, a new public-private investment vehicle to be seeded by Ottawa with $15 billion that targets innovative companies and green projects deemed too risky by private capital:

“We’ve had conversations with the Department of Finance. We would very much like to be involved with the Canada Growth Fund,” Siddall said in an interview from Sharm El-Sheikh, Egypt, where he is attending COP27, the United Nations Climate Change Conference.

...

Siddall said he attended this week’s climate change conference in Egypt — and planned a follow-up trip to Singapore — to connect with other global investors and governments to explore potential partnerships in transition finance that target carbon reduction.

“We’re actively looking at ways of investing in the transition of our economy to a low-carbon future,” Siddall said, adding that global partnerships are likely to play a role in AIMCo moving beyond recent investments in green infrastructure, renewables and clean energy storage.

 You can read Barbara's full article here.

Below, Bobby Turner, Turner Impact Capital CEO, joins the 'Halftime Report' to discuss why he's made impact investing a priority, Turner's experience raising capital for new affordable housing and healthcare funds and more.

This is an important interview which I highly recommend you all take the time to watch, he raises so many excellent points that are worth considering.  

And Mark Wiseman, chair of AIMCo, joins BNN Bloomberg to discuss market outlook amid political uncertainty. It's always worth listening to Mark's perspective, I'm still waiting for him to enter the political arena as we desperately need competent leaders who know what they're talking about.