Featuring:
Jeremy Anagnos
Portfolio Manager and Chief Investment Officer of Listed Infrastructure Strategies
CBRE Investment Management
As global energy demand continues to surge, infrastructure investment maintains a critical role in meeting the needs of tomorrow. Gain updates on the current market, outlook, and potential opportunity for income-focused investors from CBRE Investment Management Chief Investment Officer Jeremy Anagnos.
CBRE Investment Management is sub-advisor to the NYLI CBRE Global Infrastructure Megatrends Term Fund (MEGI), managed by New York Life Investments. The Fund’s primary investment objective is to seek a high level of total return with an emphasis on current income. Learn more here.
Transcript
CEFA:
Welcome to CEF Insights, your source for closed-end fund and interval fund education and insights, brought to you by the Closed-End Fund Association.
Today we are joined by Jeremy Anagnos, Portfolio Manager and Chief Investment Officer of Listed Infrastructure Strategies with CBRE Investment Management, a leading investment manager of global real assets. CBRE is sub-advisor to the NYLI CBRE Global Infrastructure Megatrends Term Fund, ticker, MEGI, and New York Life Investment Management is the investment manager of the fund.
Jeremy, we're happy to have you with us today.
Jeremy Anagnos:
Thanks, Matt. Happy to be here.
CEFA:
Jeremy, the MEGI strategy is focused on certain key trends in infrastructure investment, both in the United States and around the world. Can you discuss these, quote, megatrends and how they work together in building MEGI's investment portfolio?
Jeremy Anagnos:
On launching MEGI, which is kind of the name we give it for the ticker symbol, in 2021 our team really identified three long-term secular themes that we believe would drive the growth of the infrastructure asset class for the foreseeable future. And these megatrends are decarbonization, asset modernization and digital transformation, and they remain as relevant today really as ever. And I want to just highlight on the decarbonization trend because it could be interpreted as meaning just renewable energy, and it is much more than that. And renewable investments are still growing, but decarbonization more broadly means electrification. And we need electrons to power all of the growing parts of our economies.
In particular, the surging growth in AI as well as new manufacturing that we're seeing across particularly North America. This investment's going to span the generation of energy, but also the transmission distribution of energy and generally the hardening of the grid network. So these broad megatrend themes really are shaping the core sectors that we invest in, and that includes utilities and midstream energy and encompasses in that decarbonization theme, but also transport infrastructure, things like roads, airports, railroad networks, and then digital infrastructure, the data centers and towers. Importantly, these megatrend themes don't really limit how we construct the portfolio, and it includes all of our investment universe, which is aligned with these core megatrend themes. And as we look ahead, we will continue to actively manage these exposures, really trying to deliver high total returns alongside the attractive levels of the current income of MEGI.
CEFA:
Jeremy, closed-in funds like MEGI will utilize leverage to support attractive distributions. Can you provide an overview of MEGI's leverage as well as the fund's distribution policy?
Jeremy Anagnos:
Yeah, let me start with the distribution policy before talking about leverage. So MEGI pays a monthly distribution of twelve and a half cents, a share that comes to a dollar fifty cents on an annual basis, and at the end of February represented a 12% distribution rate based on the fund's market price at that time. Now, I want to highlight notably that MEGI recently updated its communication honest distribution policy just this month to provide guidance on the next three months of dividends. And we believe that there's a lot of value for investors to have confidence in that sustainability of the distribution, and we are hopeful that this guidance will help support the price relative to the NAV.
Now, the board and the management are continuously assessing the sustainability of these distributions, balancing the net income of the fund as well as the potential for capital appreciation. Now under the managed distribution policy, we have an ability to cover the payments for distribution, both by net investment income and capital gains, really trying to align the distribution rate with the total return outlook of the fund. And yes, MEGI does utilize leverage to enhance distributions. At the end of February, leverage stood at 25.5%, which is well below the 33 and a third percent cap, and it remains as it has been since inception in the form of a flexible line of credit. Given our positive outlook as we'll continue to discuss today, we have chosen to maintain this leverage at this level. We do believe it's going to support the total return potential and covers the cost of borrowing.
CEFA:
Jeremy, the new US administration is bringing significant policy changes. Likewise, there have been changes in political leadership for a number of countries recently. Given that government policy can shape investment and infrastructure, do these shifts in leadership have significant impact on your outlook as you manage the strategy?
Jeremy Anagnos:
The new US administration, although it's only been a few weeks, is already making waves with major policy shifts. And as you noted, globally we've seen political leadership changes in several key markets and economies. We have to recognize that infrastructure can benefit both from the government and the private sector support. So, it's worth, I think, highlighting how these shifts would impact our outlook. At the onset, we do believe that the Trump administration's a net positive for infrastructure. They've wasted no time in issuing executive orders, which signal a strong focus on really reducing regulatory burdens, particularly in the energy infrastructure space.
This is very positive news for domestic energy production as well as the US's role in the development of AI, which requires significant power and infrastructure investment. I do think what's interesting though is that the administration has given a broad all-of-the-above approach to energy. And while traditional energy is clearly a priority, there's no outright rejection of clean energy. And in fact, nuclear power in particular appears to have very strong support. One open question surrounds the Inflation Reduction Act and whether it will be modified. I don't think it's an immediate focus, but it does remain a heavy topic of debate.
I would note that a large percentage of the IRA-backed projects tend to be in Republican-led states, which does lend then some support from a bipartisan perspective to keep the broad package of IRA in place. We also think that the pro-energy stance, which really supports and requires a lot of energy investment and would likely continue to see that remain in place. And then we're also often asked about tariffs, which are very much in the headlines today, but infrastructure is very much largely insulated. Most of the infrastructure investments that we have are serving the domestic market here in the US, minimal exposure to really cross-border trade issues.
And then the companies really benefit from their large-scale purchasing and long lead times. So, they tend to make their purchases of their materials for future investment well ahead of time to help stabilize that inflation impact. So, there is some areas like North American Freight Rail where there's some exposure, but really, we see it as pretty limited downside. So, the bottom line, we would say infrastructure remains well positioned despite the shifting political backdrop. The long-term investment case remains in place. A stable demand, strong regulatory mechanisms, and the clear need for strategic investment in energy all support growth and we think makes the asset class attractive in this evolving market.
CEFA:
And what are your thoughts on valuation of infrastructure today and what is your outlook for the asset class in 2025?
Jeremy Anagnos:
We believe infrastructure is attractively valued today and really well positioned relative to other asset classes. This year we've seen the broad market return start to slow. We've seen the ten-year bond yields kind of settle in and shift a little bit lower. And then we have Trump's pro-energy agenda, which we think provides a tailwind. So, all of that is supporting the energy demand theme that we just talked about and really benefits a large portion of our portfolio. We are expecting infrastructure companies to grow their earnings eight to 9% this year. And for reference, that's well above the long-term average that the companies have grown earnings at about 6.5%. And we believe this elevated growth rate really could continue for a couple of years. And I think that kind of consistency and outlook could be very valuable to investors in what is a pretty uncertain environment.
Now, there is some concern about how infrastructure can perform in a higher rate environment, but when we look back historically, we've seen that the companies really can weather these types of conditions. The cash flows of the underlying assets are generally positively correlated with inflation. They pass along the costs of inflation to the users of the assets, and we're entering into this infrastructure investment rising CapEx boom, which is going to benefit the companies in terms of growth. And then we've seen infrastructure underperform the broad equity market really during Covid and this recent rate height cycle really put valuation on a relative basis at a strong discount to the broader equity market. So at this point of inflection of higher growth rate, we think positioning the asset class for strong returns, even while there's growing uncertainty in global policy outlook and global economic with the discounted valuations, solid fundamentals and our view of the strong secular themes, we think the asset class set to deliver total returns, which are well above the historical eight to 10% annualized range that the asset class has historically delivered.
CEFA:
And where are you in your investment team seeing the best opportunities within global infrastructure in the current environment?
Jeremy Anagnos:
Yeah, the year kicked off with some large headlines, which really reinforced the themes that we're looking at around energy demand and that the need for energy growth isn't just a short-term phenomenon, but a long-term theme. And the fact that the infrastructure companies that we can invest in are really right in the middle of this need and will be required to help in the massive investment build-out. We see the rising power demand creating opportunities across our investment themes, utilities certainly within the decarbonization space, and to benefit midstream energy companies, gas utilities and our asset modernization category should see tailwinds while data centers in the digital transformation area, our core piece of this surging AI-driven demand. And we looked at one of the big developments this year talking about these big headlines was a nearly $30 billion M&A deal that's going to drive scale and earnings growth for Constellation Energy.
Constellation is the largest owner of nuclear generation assets in the US. And they also, the same company that had previously announced plans to restart the three-mile island nuclear generation facility in partnership with Microsoft, who's securing the power and effectively underwriting that through a long-term contract. So just an example of the increasing investment activity demand for nuclear power. Further, supporting the AI theme, the $500 billion Stargate Venture backed by OpenAI, SoftBank and others. Just another significant signal for the jump in power demand that we're going to see and the amount of investment that's being supported.
You have to acknowledge there's been some risks along this path as well. The news of DeepSeek raised lot of questions about the dominance of the US and the AI market, whether more efficient models could slow the CapEx spending, so take it lower level of investment going forward. But we've had all the large cap tech companies do their earnings calls after that announcement and really, I think put a lot of those fears to rest the announcements from those companies about capital spending more than 50% over last year's very high levels. Just four of the large cap tech companies alone are forecasting 325 billion of investment this year in AI, and really, industry-wide could be well over that figure. So that keeps us bullish on the long-term outlook for power. Power markets are tightening, energy demands rising, it's going to create many opportunities for utilities, mainstream companies, power generation companies, and just kind of early stages of fueling what we think is a long-term trend.
CEFA:
Jeremy, given the rise of the energy demand theme as well as shifting government policies, what changes have you made to the portfolio and how are you positioned overall?
Jeremy Anagnos:
As we started talking about this, our strategy remains anchored in those themes around decarbonization asset modernization and digital transformation. But we certainly have actively adjusted our position across these themes given the shifting trends in macroeconomic conditions and policy shifts. So, if I compare MEGI's positioning at the end of June 2023 to the end of December 2024, I would note these following changes. The decarbonization exposure reduced from 56% to 44% really by trimming a European renewable and utility exposure in Hong Kong. Sentiment towards renewables certainly been weaker the last couple of years. That's despite, as I mentioned, ongoing investment. But we recognize this and favored more traditional utility investments who are potential to benefit from the increased power demand growth, particularly in the US.
Within the asset modernization category, we have increased our exposure from 31% to 42% with more emphasis on some of the transport exposure in the US and freight rail, but also in global toll roads. And then in the US and Canadian midstream energy infrastructure sector, which again, we believe are key beneficiaries alongside utilities of this rising power demand theme. And then finally, we've really increased our exposure to common stocks relative to some of the preferred stock exposure, common stocks which have, we think, better potential for capital appreciation than some of the preferred securities. So, we remain committed to delivering these strong long-term total returns, positioning MEGI to capitalize on what we think are these enduring global infrastructure trends. I want to thank everyone and the investors for their ongoing interest and support.
CEFA:
What are the most significant risks you consider in the current environment?
Jeremy Anagnos:
Whenever you're investing in loans, the biggest risk is credit risk. These are non-investment grade rated companies. But, again, they are to large US based corporations. But credit risk is the biggest risk that needs to be considered. Historically, the average default rate in the loan market is approximately 3%, which goes back to a question you asked earlier about risk management and being able to risk manage the portfolio on a daily basis and having such a large team to do so really helps us try to mitigate that default risk that's in the market.
CEFA:
And Jeremy, just one final question for you. How do you see this income-focused, global infrastructure strategy best positioned in an investor's diversified portfolio?
Jeremy Anagnos:
I think an income-focused global infrastructure strategy can be a valuable addition, as you mentioned, to a well-diversified portfolio because of its unique mix of stable cash flows supported by the characteristics of the asset class, the inflation protection, the regulated or contracted nature which has less economic sensitivity, and then these long-term secular growth potential. I think investors who want consistent income infrastructure can really complement some of your fixed income investments, but it provides that upside potential in a higher inflation environment where the cash flows of the underlying assets we think will continue to show that historical positive correlation and it is defensive. But beyond that, I think as we've highlighted today, it does offer exposure to growth. Growth for this broad theme of energy investment, which spans, again, we've talked about the three categories that we're investing in and includes energies, investments, but also digital networks. And I think that really can make it appealing when there's such uncertainty in the broader market and people want to have some certainty of outlook of growth infrastructure can help provide that.
CEFA:
Jeremy, thank you for taking the time to share your thoughts with us today. We really appreciate it.
Jeremy Anagnos:
Thank you, Matt. Appreciate the opportunity to talk more in depth about our outlook for MEGI.
CEFA:
And we want to thank you for tuning in to another CEF Insights podcast. For more closed-end fund and interval fund education and insights, please visit CEFA.com.
Podcast recorded March 2025.
Disclosure
This material is not, and is not intended as investment advice, an indication of trading intent or holdings or the prediction of investment performance. All fund-specific information is the latest publicly available information. All other information is current as of the date of this presentation. All opinions and forward-looking statements are subject to change at any time.
New York Life Investment Management and CBRE Investment Management disclaim any responsibility to update such views and/or information. This information is deemed to be from reliable sources; however, New York Life Investment Management and CBRE do not warrant its completeness or accuracy. This presentation is not intended to, and does not constitute an offer or solicitation to sell or a solicitation of an offer to buy any security, product, investment advice or service (nor shall any security, product, investment advice or service be offered or sold) in any jurisdiction in which New York Life Investment Management and/or CBRE is not licensed to conduct business, and/or an offer, solicitation, purchase or sale would be unavailable or unlawful.
Distribution/ Distribution Frequency - The Fund intends to distribute monthly all or a portion of its net investment income, including current gains, to common shareholders. There is no assurance the Fund will continue to pay regular monthly distributions or that it will do so at a particular rate. Net capital gains and excess income, if any, will be distributed to common shareholders at least annually. The Fund has an ‘opt-out’ dividend reinvestment plan, so all or a portion of an investor’s distributions can be reinvested in the Fund’s Common Shares. The distribution rate that the Fund pays on its common shares may vary as portfolio and market conditions change and will depend on several factors. Any distributions in excess of the Fund’s current and accumulated earnings and profits will be treated first, as a tax-deferred return of capital, which is applied against and will reduce the adjusted tax basis of shares and, after such adjusted basis is reduced to zero, will generally constitute capital gains. A return of capital distribution may lower a shareholder’s basis in the Fund, causing a potential future tax consequence in connection with the sale of Fund shares, even if such shares are sold at a loss to the shareholder’s initial investments. Any amounts and sources of distributions are only estimated and are not being provided for tax reporting purposes. The actual amounts and sources of income of the amounts for tax reporting purposes will depend on the Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations.
There is no assurance the Fund will continue to pay regular monthly distributions or that it will do so at a particular rate. You should not draw any conclusions about the Fund’s investment performance from the amount of its distribution to shareholders. Any distributions in excess of the Fund’s current and accumulated earnings and profits will be treated first, as a tax-deferred return of capital, which is applied against and will reduce the adjusted tax basis of shares and, after such adjusted basis is reduced to zero, will generally constitute capital gains. A return of capital distribution may lower a shareholder’s basis in the Fund, causing a potential future tax consequence in connection with the sale of Fund shares, even if such shares are sold at a loss to the shareholder’s initial investments. Any amounts and sources of distributions are only estimated and are not being provided for tax reporting purposes. The actual amounts and sources of income of the amounts for tax reporting purposes will depend on the Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The Fund will send a Form 1099- DIV for the calendar year that will advise how to report these distributions for federal income tax purposes.
About Risk:
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. No Operating History Risk - The Fund is a recently organized, non-diversified, closed-end management investment company with no operating history. It is designed for long-term investing and not as a vehicle for trading. Shares of closed-end investment companies frequently trade at a discount from their NAV. This risk may be greater for investors expecting to sell their shares in a relatively short period of time after completion of the public offering. Limited Term Risk - Unless action is otherwise taken by the Board in accordance with the Declaration of Trust, the Fund will commence the process of liquidation and dissolution at the close of business on the Termination Date. The Fund will not seek to return an initial investment in common shares by an investor on the Termination Date. Instead, the Fund will distribute an amount equal to the Fund’s NAV at that time, which may be greater or less than an investor’s initial investment.
Infrastructure Industry Risk - The Fund is particularly exposed to adverse economic, regulatory, political, legal, geographical, and other changes affecting the issuers of infrastructure related securities. Infrastructure-related companies are subject to a variety of factors that may adversely affect their business or operations, including high interest costs in connection with capital construction programs, difficulties in obtaining financing for construction programs, costs associated with environmental and other regulations, the effects of economic slowdown, surplus capacity, increased competition from other providers of services, uncertainties concerning the availability of fuel at reasonable prices, the effects of energy conservation policies, changes in market sentiment and other factors. Additionally, infrastructure-related companies may be subject to regulation by various governmental authorities, may also be affected by governmental regulation of rates charged to customers, service interruption, and/or legal challenges due to environmental, operational, the imposition of special tariffs and changes in tax laws, regulatory policies, and accounting standards. There is also the risk that corruption may negatively affect infrastructure projects, resulting in delays and cost overruns. Leverage Risk - The use of leverage creates an opportunity for increased common share net investment income dividends, but also creates risks for the holders of common shares. Leverage is a speculative technique that exposes the Fund to greater risk, and increased costs. Leverage may cause greater changes in the Fund’s NAV. The Fund will also have to pay interest on its borrowings, if any, which may reduce the Fund’s return. Equity Securities Risk - Equity securities prices have historically experienced periods of significant volatility, particularly during recessions or other periods of financial stress. Common stock prices, like other equity securities may be affected by macroeconomics and other factors affecting the stock market in general, including financial or political conditions that may affect particular industries, or the economy in general. Preferred stocks are subject to issuer-specific risks, in addition to the general equity risks, and unlike common stocks, participation in the growth of an issuer may be limited. Foreign Securities Risk - Foreign securities may be more volatile, harder to price, and less liquid than U.S. securities, may also involve the risk of political and economic instability; currency exchange rate fluctuations; and less stringent regulatory and accounting standards. Convertible Securities Risk - The value of a convertible security, which is a form of hybrid security (i.e., a security with both debt and equity characteristics), typically increases or decreases with the price of the underlying common stock. In general, a convertible security is subject to the market risks of stocks, and its price may be as volatile as that of the underlying stock, when the underlying stock’s price is high relative to the conversion price, and a convertible security is subject to the market risks of debt securities, and is particularly sensitive to changes in interest rates, when the underlying stock’s price is low relative to the conversion price. The general market risks of debt securities that are common to convertible securities include, but are not limited to, interest rate risk and credit risk, they are subject to the risk that the issuer will not be able to pay interest or dividends when due; and their market value may change based on changes in the issuer’s credit rating or the market’s perception of the issuer’s creditworthiness. Debt Securities Risk - The risks involved with investing in debt securities include (without limitation) - Credit risk - the risk that an issuer, guarantor, or liquidity provider of a debt security may be unable or unwilling, or may be perceived (whether by market participants, ratings agencies, pricing services or otherwise) as unable or unwilling, to make timely principal and/or interest payments, or to otherwise honor its obligations. Maturity Risk – Maturity is the average expected repayment date of the Fund’s portfolio, taking into account the expected final repayment dates of the securities in the portfolio. A debt security with a longer maturity may fluctuate in value more than a debt security with a shorter maturity. Therefore, the NAV of the Fund that holds debt securities with a longer average maturity may fluctuate in value more than the NAV of the Fund that holds debt securities with a shorter average maturity. Investment and Market Discount Risk - An investment in the Fund’s Common Shares is subject to investment risk, including the possible loss of the entire principal amount that you invest. As with any stock, the price of the Fund’s Common Shares will fluctuate with market conditions and other factors. At any point in time an investment in the Fund’s Common Shares may be worth less than the original amount invested, even after taking into account distributions paid by the Fund. The Fund uses leverage, which will magnify the Fund’s investment, market, and certain other risks. Management Risk - The Fund is subject to management risk because it is an actively managed portfolio. Dividend Paying Securities Risk - Dividends the Fund receives on common stocks are not fixed but are declared at the discretion of an issuer’s board of directors. There is no guarantee that the issuers of the securities held by the Fund will declare dividends in the future or that, if dividends are declared, they will remain at their current levels or increase over time. The Fund’s emphasis on dividend paying securities could cause the Fund to underperform versus similar funds that invest without consideration of a company’s track record of paying dividends or ability to pay dividends in the future. Dividend paying securities may not participate in a broad market advance to the same degree as other securities, and a sharp rise in interest rates or an economic downturn could cause a company to unexpectedly reduce or eliminate its dividend. Market Discount from Net Asset Value Risk - Shares of closed-end investment companies frequently trade at a discount from their net asset value. This characteristic is a risk separate and distinct from the risk that the Fund’s NAV per Common Share could decrease as a result of its investment activities and may be greater for investors expecting to sell their Common Shares in a relatively short period of time following completion of this offering. The net asset value per Common Share will be reduced immediately following this offering as a result of the payment of certain offering costs. Although the value of the Fund’s net assets is generally considered by market participants in determining whether to purchase or sell Common Shares, whether investors will realize gains or losses upon the sale of the Common Shares will depend entirely upon whether the market price of the Common Shares at the time of sale is above or below the investor’s purchase price for the Common Shares. Because the market price of the Common Shares will be determined by factors such as net asset value, dividend and distribution levels and their stability (which will in turn be affected by levels of dividend and interest payments by the Fund’s portfolio holdings, the timing and success of the Fund’s investment strategies, regulations affecting the timing and character of Fund distributions, Fund expenses and other factors), supply of and demand for the Common Shares, trading volume of the Common Shares, general market, interest rate and economic conditions and other factors that may be beyond the control of the Fund, the Fund cannot predict whether the Common Shares will trade at, below or above net asset value or at, below or above the initial public offering price. Emerging Markets Risk - The risks of foreign investments (or exposure to foreign investments) are usually much greater when they are made in (or result in exposure to) emerging markets. Investments in emerging markets may be considered speculative. Emerging markets are riskier than more developed markets because they tend to develop unevenly and may never fully develop. They are more likely to experience high rates of inflation and currency devaluations, which may adversely affect returns. In addition, many emerging markets have far lower trading volumes and less liquidity than developed markets, may be more likely to suffer sharp and frequent price changes or long-term price depression due to possible adverse publicity, investor perceptions, or the actions of a few large investors. Also, there may, be less publicly available information about issuers in emerging markets, and such issuers may not be subject to accounting, auditing, recordkeeping, and financial reporting standards and requirements comparable to those to which companies in developed markets are.
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Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large, specified blocks of shares called "creation units", and otherwise, can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in-kind.
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