Stockholm (HedgeNordic) – Traditional infrastructure investments have long been viewed as an effective hedge against inflation. These investments generally benefit from stable, long-term contractual income streams from high-quality counterparties, offering reduced economic sensitivity and high cash flow visibility. However, infrastructure assets vary widely in their nature and performance. The performance of some assets such as airports or ports can be closely tied to economic growth, while others such as renewable energy assets may depend on prevailing electricity prices.

“Traditional infrastructure has indeed been a good hedge against inflation because long-term contracts or regulated mechanisms secure stable long-term cash flows,” confirms Gilles Lafleuriel, Head of Sweden at Obligo, a Nordic asset manager specializing in sustainable infrastructure and real estate. “These mechanisms are designed to adjust for inflation, so investors are not directly impacted by price movements,” he continues.

However, Lafleuriel points out that there are other ways to invest in infrastructure. For example, choosing not to hedge a wind park against power prices provides exposure to merchant risk. Obligo, which manages a diversified infrastructure climate impact fund focusing on renewable energy, clean mobility, and other sectors, has taken a merchant approach for their renewable power assets.

Recent low power prices across Europe, particularly in the Nordics and Sweden during the summer, have created stress on existing renewable energy assets. “Revenues have fallen short of expectations in the last few months, which has put pressure on liquidity and future cash flows,” acknowledges Lafleuriel. “We believe it may take several years for power prices to normalize to levels we thought would be achievable just six months ago,” he continues. “This certainly creates challenges for our existing assets, but we still believe in the long-term healthiness of the power market, driven by a steadily growing demand. Patience is key,” says Lafleuriel. As an investor, the short-term situation is creating both obstacles and opportunities for us.”

Adapting to the Nordic Market

Operating in the Nordic region has required Obligo to tailor its approach. “We are operating in the Nordics, a market that has its own characteristics,” says Lafleuriel. “The Nordic infrastructure market is heavily dominated by the public sector, leading to limited opportunities for private investors, often difficult to capture,” continues Lafleuriel, who has more than 20 years of experience in the infrastructure industry. This necessitates a creative approach to identifying, assessing, and executing investments.

“The Nordic infrastructure market is heavily dominated by the public sector, leading to limited opportunities for private investors, often difficult to capture.”

Gilles Lafleuriel, Head of Sweden at Obligo.

Rather than waiting for the public sector to divest legacy infrastructure assets, Obligo has taken a proactive stance by investing early in the development of energy transition projects, including carbon capture and charging stations, among others. “We realized that we need to grab the bull by the horn, i.e. create value by building from scratch,” says Lafleuriel. “This approach means that we are investing at the very beginning of these projects, during the development or construction stages, and sometimes even earlier by taking a stake into the development companies.”

“We realized that we need to grab the bull by the horn, i.e. create value by building from scratch.”

Gilles Lafleuriel, Head of Sweden at Obligo.

This approach involves taking on more corporate risk, often resembling private equity or venture capital, rather than pure infrastructure risk, according to Lafleuriel. “We’ve consciously decided to take on these risks,” says Lafleuriel. “While the end game is to be invested in operational assets, we start by investing at the earliest stages, from development through early operations.”

Investing Across Four Key Sectors

Obligo’s diversified infrastructure fund focuses on four core sectors: renewable energy, energy distribution and storage, clean mobility such as EV charging, and digital infrastructure. The fund holds both operational assets and development projects across these sectors. “We currently manage not only operational wind and fiber assets, but also development projects in solar, carbon capture, and charging stations for heavy trucks,” says Lafleuriel.

As an Article 9 fund under the SFDR, the Obligo Nordic Climate Impact Fund is committed to delivering measurable impact, particularly in combating climate change. “We achieve this by either investing in existing assets to sustain their operations or by developing new ones from scratch,” explains Lafleuriel. For instance, Obligo has invested in aging wind farms in southern Sweden, ensuring their longevity through efficient operations and, eventually, retrofitting and repowering when needed. “This adds value to the sustainability of the energy system.”

“We currently manage not only operational wind and fiber assets, but also development projects in solar, carbon capture, and charging stations for heavy trucks.”

Gilles Lafleuriel, Head of Sweden at Obligo.

However, Obligo’s most significant impact comes from early-stage investments. “The most obvious value creation takes place when one takes a project from a concept on paper to full operations,” Lafleuriel notes. One example is Obligo’s investments in truck charging stations, which started as a stake in a development company and have now evolved into fully operational assets. “Our existing portfolio is a testimony of our investment philosophy: adding value by creating sustainable assets or ensuring their long-term operations.”

Obligo has positioned itself as a local investor with a strong track record of sourcing, executing, and developing infrastructure projects. “These deals are also not only difficult to source, but they are also, most of the time, fairly difficult to execute,” argues Lafleuriel. “Our approach isn’t traditional infrastructure investing, we offer a solution to diversify both infrastructure and private equity portfolios,” he continues. “But the end game remains the same and involves providing exposure to infrastructure assets that are and will be essential to the society for the long term.”