Animal Spirits Podcast Summary
Episode: Talk Your Book: What Even Is Infrastructure?
Release Date: June 30, 2025
Hosts: Michael Batnick and Ben Carlson
Guest: Scott Lippman, Portfolio Manager at GCM Grosvenor
1. Introduction to Infrastructure Investing
In this episode of the Animal Spirits Podcast, hosts Michael Batnick and Ben Carlson delve into the topic of infrastructure investing with their guest, Scott Lippman from GCM Grosvenor. The conversation serves as a comprehensive primer on what infrastructure investing entails, its significance in today's market, and how it fits into a diversified investment portfolio.
2. Understanding Infrastructure Investments
Michael Batnik kicks off the discussion by sharing his evolving understanding of infrastructure investments, highlighting the transformation of airports like LaGuardia:
"[...] LaGuardia, when I used to come in, felt like a third world country. It was awful. One of the worst airports ever. It was just terrible. [...] all of a sudden in the last few years, they totally redid it. And now it's absolutely amazing."
— Michael Batnik [01:50]
Scott Lippman emphasizes the surge in infrastructure projects across the United States, particularly airports, influenced by significant capital inflows:
"The rails of the United States are old. And one of the biggest trends in the, I guess asset management industry, is infrastructure. You listen to Larry Fink, he gave a multitrillion dollar number over the next X number of years, [...] revitalizing the foundation of our society."
— Scott Lippman [02:21]
3. Revenue Streams in Infrastructure
The conversation explores the primary revenue streams for infrastructure, using airports as a case study:
Ben Carlson explains the dual revenue model:
"One is the basically cost of landing at the airport, for the airlines... And then the second revenue stream is what's going on in the terminal."
— Ben Carlson [04:56]
He further elaborates on different models, such as revenue sharing and volumetric landing fees, using the San Juan airport as an example:
"If you looked at the structure of the San Juan deal, there was a rev share, or really kind of a cost share, [...] if an airline pulled out, we still made the same amount of money."
— Ben Carlson [06:22]
4. Predictability of Cash Flows and Exit Strategies
Scott Lippman raises concerns about the predictability of cash flows and the potential for exiting investments:
"Do you exit those investments ultimately?"
— Scott Lippman [04:56]
Ben Carlson responds by differentiating between core infrastructure investments and those aimed at improving assets:
"If we're in kind of the business of improving airports... we can sell to a lower cost of capital after five, seven, ten years."
— Ben Carlson [08:02]
5. Evolution and Private Involvement in Infrastructure
The hosts discuss the shift from municipality-funded projects to private investments, particularly in politically charged environments like the U.S.:
Ben Carlson highlights the political challenges and the role of private capital in successful projects:
"In Europe, this has been going on for some time. In the US, there's a very limited number of airports where this is actually in play... when the municipality just can't fund it itself."
— Ben Carlson [09:05]
He cites LaGuardia Airport's transformation as a testament to effective private investment:
"It's a totally different animal, Right? A bottom five airport forever. And then they bring in private capital, they finish it on time, on budget, and it's one of the top five airports in the US."
— Ben Carlson [10:03]
6. Target Investors and Return Profiles
Michael Batnik broadens the discussion to address common questions about infrastructure investments, such as investor suitability, return profiles, risk, and liquidity.
Ben Carlson asserts that infrastructure is suitable for all investors due to its unique correlation properties:
"Infrastructure's correlation to the public markets and to other parts of the private markets is something that's so unique that it's something that really can create diversification in a portfolio."
— Ben Carlson [11:42]
He discusses the evolution of returns in core infrastructure, noting increased competition and lower returns over time:
"Core infrastructure was a 10+% returning animal... then everyone showed up. And guess what happens when everybody shows up? You get competition, returns get lower."
— Ben Carlson [12:14]
7. Risk Management Strategies
The hosts explore how managers mitigate risks inherent in infrastructure investments.
Ben Carlson emphasizes diversification and strategic entry pricing as critical risk management tools:
"Diversification, buying right, those are the two keys in our mind."
— Ben Carlson [18:34]
He contrasts his fund's approach with others, highlighting the importance of spreading investments across numerous assets to minimize the impact of any single underperforming asset.
8. Fund Structure and Differentiation
The spotlight turns to the Scion Grosvenor Infrastructure Fund, managed by Scott Lippman.
Ben Carlson describes the fund as an interval fund designed to provide retail investors with access to a diversified portfolio of infrastructure assets:
"Minimums is as low as $2,500. And what we're looking at from a liquidity perspective is we're looking, you've got to have an RIA to come in, at least initially."
— Ben Carlson [22:56]
He differentiates his fund by focusing on a high number of individual investments annually, ensuring constant deal flow and diversification:
"Nobody's doing more deals than us in the market year over year... we're going to do anywhere between 12 and 18 individual investments every year."
— Ben Carlson [30:07]
9. Liquidity and Fee Structure
The discussion covers the liquidity constraints and the fee structure of the fund.
Ben Carlson clarifies the fund's liquidity terms and fee model:
"It's an interval fund. [...] We're providing quarterly liquidity of up to 5%."
— Ben Carlson [22:56]
Regarding fees, he outlines a straightforward structure without carried interest:
"No carried interest in this structure. [...] you're going to have about 160 basis points of fee exposure and then an expense load that goes along with that for administration."
— Ben Carlson [31:59]
10. Standing Out in a Crowded Market
With the proliferation of interval funds across various asset classes, the fund's unique positioning is crucial.
Ben Carlson explains how the Scion Grosvenor Infrastructure Fund stands out by offering access to a relatively young asset class and maintaining a high level of deal flow:
"Infrastructure, relatively young asset class, not a lot of folks that have exposure. [...] we are much more diversified than a structure like that because we can work with the entire market."
— Ben Carlson [26:28]
He contrasts his approach with control investors and secondary market participants, emphasizing the fund's ability to underwrite a large number of deals and maintain a diversified portfolio.
11. Conclusion and Next Steps
The episode wraps up with information for financial advisors interested in learning more about the fund.
Ben Carlson directs listeners to Scion's website and GCM Grosvenor for additional materials:
"For financial advisors that want to learn more, Scion has all this material on its website and then certainly they can reach out through GCM as well."
— Ben Carlson [32:49]
Key Takeaways:
- Infrastructure Investing: Offers diversification benefits due to low correlation with traditional asset classes.
- Revenue Streams: Primarily from landing fees and terminal operations in airport investments.
- Risk Management: Achieved through diversification and strategic entry pricing.
- Fund Structure: The Scion Grosvenor Infrastructure Fund is an interval fund with low minimum investment and limited liquidity, designed for long-term investors.
- Market Positioning: The fund differentiates itself through high deal flow and broad diversification, providing access to a relatively underrepresented asset class in retail portfolios.
- Fees and Liquidity: Transparent fee structure with 160 bps fees and up to 5% quarterly liquidity, suitable for investors with a long-term horizon.
This episode provides a thorough exploration of infrastructure investing, offering valuable insights for both novice and seasoned investors looking to understand the intricacies and opportunities within this asset class.