If we are to build a better tomorrow, we need to invest in the foundations today
This is a commentary by Chow Kiat Lim, Chief Executive Officer of GIC and 2023 Eisenhower Global Citizenship Award Recipient, originally published by Reuters on November 18, 2023.
Recent events, including the conflict in the Middle East, are stark reminders that we continue to live in uncertain and volatile times. Today, all of us feel the impact of the unfolding crises on multiple fronts; from geopolitical tensions to macroeconomic headwinds and climate disasters. No one is an island. In this context, the concept of global citizenship has taken on greater importance. What does global citizenship mean for investors that deploy capital across different geographies and communities? How can we invest to earn a good return, while contributing to building the foundations of a better tomorrow? As chief executive of GIC, Singapore’s sovereign wealth fund, I can tell you the answer is surprisingly straightforward: the deployment of long-term capital and the embrace of global partnership, both of which are essential to our world, yet in short supply.
Consider infrastructure as among the most far-reaching, large-scale and impactful investments we can make with long-term capital. These assets undergird economies and are essential for safe, modern living. Infrastructure businesses at every stage of growth require consistent, long-term investments to serve their communities effectively and contribute to meeting the world’s needs. In addition, they require committed partnership from financial backers and governments alike, to address challenges, remove hurdles and keep these essential services functioning well.
Over more than a decade, infrastructure has grown to become a significant and critical part of GIC’s total portfolio. Investors like GIC can find good long-term opportunities that also drive impact in companies that develop and operate airports, seaports, electricity utilities, renewable energy generation, fibre networks, telecommunication towers and others.
In addition to bringing much-needed benefits directly to communities, infrastructure investments also bring measurable benefits to an investor’s portfolio. These include inflation-protection, particularly relevant now, alongside unique qualities of resiliency across macroeconomic cycles due to the defensive nature of the underlying assets. Further, these investments offer stable and predictable cash flows and low risk of obsolescence.
More broadly, infrastructure investments are attuned to, and key solutions for, the mega-trends we face today. For example, the criticality of climate change and energy security have widened opportunities in energy transition. Digitalisation trends such as increased data consumption and cloud migration have been turbocharged by the COVID-19 pandemic and the advent of artificial intelligence, requiring increased digital infrastructure capacity.
Long-term capital is critical in driving sustainable success for infrastructure investments. The willingness and ability of long-term capital to support a company’s growth over an extended period, and the trusted partnership between investors and investees, gives companies the confidence to continue developing across cycles.
In Brazil, GIC’s investment in sanitation company Aegea provides a clear example of how local communities can benefit from long-term capital. Over the course of 10 years, GIC’s investment has helped expand Aegea’s network, providing clean water and proper sewage to 31 million people, up from the 2 million it served previously. Aegea has also hired thousands of workers from vulnerable communities, restored the environment by reducing raw-sewage discharges, and reduced by 80% hospital admissions for water-borne diseases.
Long-term capital also supports companies seeking to make deep transformations, such as those with net-zero ambitions, meet their goals. Duke Energy Indiana (DEI), a subsidiary of one of the largest utility holding companies in the U.S., is an example of how investing in the transition, rather than blunt divestment, can support the global transition to net-zero in the real economy. In 2021, when GIC invested in DEI as a minority shareholder, the company relied largely on coal-fired power plants to generate electricity for its nearly one million customers. With the support of long-term capital investment, DEI has begun the process of transitioning its power generation fleet towards cleaner fuel sources, including renewable energy. This helps DEI to meet its goal of retiring all coal-fired power generation by 2035.
Long-term capital can also be important to support innovation, even in the early days of a company’s life cycle. Accelerating the clean energy transition will not be possible without investment in innovation and partnerships with regulators and policymakers. In the U.S., Form Energy is a pioneer of multi-day energy storage through its innovative iron-air batteries that help facilitate the transition to a cleaner, more reliable, and cost-effective grid. Long-duration energy storage for renewables is especially critical to address intermittency in renewable power generation, potential grid outages and extreme weather events. With GIC’s investment, Form is building its first manufacturing facility on the grounds of a former steel mill in West Virginia, marking a significant move to transform a former coalmining and steel-producing community into a clean energy hub.
Providing long-term capital does not necessarily equate to distant returns for investors. Indeed, it can deliver super-charged growth, particularly if it provides solutions for the challenges raised by the megatrends we face. One example is Cellnex, Europe’s largest independent telecom tower company. Cellnex signs long-term, inflation-indexed contracts with network operators and enables the provision of broad and fast connectivity to individual consumers and businesses. Since GIC began investing in Cellnex in 2018, the company has grown its number of sites five-fold through organic growth and acquisitions.
Going forward, more long-term capital will be needed to close the large and growing gap between infrastructure needs and current investment. In 2023, the world is projected to invest $2.9 trillion against a $3.4 trillion need, By 2040, when the world’s population is estimated to rise to 9.2 billion people, infrastructure investments are projected to reach $3.8 trillion while the need will have soared to $4.6 trillion. By 2050, needs will be even more acute, as nearly 70% of the world’s people are expected to have moved to urban areas, where infrastructure will need to be modernised and expanded.
Deploying long-term capital well requires the work of governments, businesses, nonprofits and individuals, all working together. Real change will require the partnerships of many around the world, including external fund managers, peer investors, investee companies, service providers and community organisations. Together, we can expand our investment universe, widen our perspectives and provide competencies to augment each of our unique capabilities.
Since our establishment in 1981, GIC has had the benefit of time and consistent experiences to forge trust among our partners. The future will require many new partners and partnerships. Together, we must continue to say “yes” to broadening our perspectives and making investments that can solve complex issues and generate good returns at the same time. Now is the time for all of us to embrace our roles as global citizens and change-makers; to invest in the foundations of a better tomorrow.
About the Author
Lim Chow Kiat was appointed chief executive officer of Singapore’s sovereign wealth fund GIC in January 2017. He chairs the group executive committee, which governs and reviews all key investment, risk, and business decisions. He is overall responsible for the performance of GIC, and oversees the development and execution of long-term strategies. Mr. Lim is also the chairman of the Wealth Management Institute and serves on the boards of National Research Foundation and Enterprise Singapore. He is a member of Agence France Trésor’s Strategic Committee and the WEF International Business Council, a FCLTGlobal Strategic Advisor, as well as a former trustee of Nanyang Technological University.