This quarterly valuation update looks at three trends in energy and infrastructure.
The cost of debt in a new range
The cost of debt has settled in a new range, and asset owners are adapting to it. Long-dated gilt yields were relatively stable over the quarter, which confirms the rise in yields seen in the second half of 2022. Private debt transactions are still taking place, but asset owners are having to accept the higher cost.
Discount rates under competition
Competition for energy and infrastructure assets remains strong, and it has limited how far asset discount rates have risen so far. The capital markets expect more increases to come.
ESG and valuations
ESG considerations increasingly affect asset valuations, for complex reasons. ESG affects investment appetite, and so liquidity and pricing. It also affects specific risks that a valuation would need to consider in any case. It may not need to be separated out explicitly, but a valuer cannot ignore it.