Martin Lefebvre
Hi everyone. Welcome and thank you for tuning into this NBI Podcast. Today we're going to talk about trends in real assets. And to do so I'm joined by Noah Hauser, head of infrastructure investments and portfolio manager at Nuveen Asset Management. Noah, welcome.
Noah Hauser
Thanks for having me. It's great to be here.
Martin Lefebvre
There are many trends we could discuss today, but I guess the infrastructure and the AI demand and all of that is on everyone's lips. How do you see infrastructure being a fundamental in that play, especially in terms of surging demand for power?
Noah Hauser
I think you really hit on one of the most exciting opportunities with an infrastructure. For someone that spent going on 20 years in this space, I've never seen anything like this. What gives me comfort ultimately around what's going on and about gives me further conviction, and the overall asset class is when you look at Nvidia, they're going to need to sell an enormous amount of chips to justify their valuation.
We're going to build a tremendous amount of data centres across North America and the globe. If we're to build all these data centres, they run 24 hours a day, seven days a week. We're going to need to build a lot of power plants to ensure that there's a way for these new facilities to run. Obviously, renewables, wind, solar batteries are going to continue to have a very important role in this. There's a growing acceptance and understanding really across the spectrum that the scale of this opportunity is such that it really is going to need to be an all above the board approach in order to solving for the new supply that's going to be needed. And we're able to invest in the data centres. We're able to invest in the companies that are building these power plants. We're able to invest in the companies that are handling the transmission and distribution of the energy that's needed for these new facilities. If we're going to build a lot of gas plants, we're going to need gas pipelines. We're able to invest in the pipelines as well and really highlight the parts of this food chain that we see the best risk-adjusted returns and have the greatest opportunity for growth going forward.
Martin Lefebvre
You mentioned gas. I guess time to market is important in all of this. Solar panels and stuff like that, or even a hydro plant is not part of the equation, and especially not maybe a nuclear plant. You think more gas facilities will have to be put forth to answer this enormous surge in demand?
Noah Hauser
I'd like to answer that in two parts. I think you're absolutely right. What we're seeing as a differentiator for regions and territories that are winning in this environment are those that are able to site and develop plants more easily than other areas. We are starting to see parts of the United States that are clear winners relative to others. One wouldn't think about it, but Northern Louisiana is becoming a hotbed for new data centre development. You wouldn't think of it, but Northern Indiana is becoming a hotbed for data centre development. These are areas that, because they're coming from a much lower base, you're able to get enormous torque, leverage. There's going to be an inflection and growth for these companies. And that's something that is really unique, ultimately.
Martin Lefebvre
Anytime we talk about data centres and the hyperscalers, it seems that capex is just enormous. It's just deep pockets. Do you think that scale matters also in terms of infrastructures? And how will these companies make money in the short term? seems that what's the value add and all that?
Noah Hauser
I just go back to my original point, which is we're starting to see areas where there are clear winners. And something that I fundamentally believe is that winners are going to continue to win. And I say that from the standpoint of, you know, we're going through the process right now of the first wave of spending. We most recently got updates on the third quarter calls from all the hyperscalers. These companies have had every opportunity to scale back expectations, to take a pause, to slow their spending. They're doing the exact opposite. They are accelerating spending. They're talking about spending more next year. While there could oftentimes be those that want to throw stones, I think that these companies are not backing off. And what I love about how infrastructure is positioned within the context of this is that I'm really quite agnostic to what the chip is that's powering the centre. Like, I don't really care. What's important for my thesis and what gives me conviction in it is as long as steel is going in the ground, my companies are going to need to build. And that is going to create long-term value in the form of increasing growth rates from an earnings and cashflow standpoint.
Martin Lefebvre
If we go back now to the energy problem and some of the sources. We've talked about gas. If the energy demand surges to a point where it's bad for the environment and we don't want to go back to coal plants and stuff like that, are there new renewable sources of energy that you see some great potential into? What's your take?
Noah Hauser
At this point and just with how I approach from a philosophical standpoint investing in infrastructure, by nature, we're going to be investing in a bit more proven technology. That being said, and I want to be clear with this, there are a lot of really exciting things that are going on within the context of small modular nuclear reactors, for instance. But these are solutions that are still really quite early on. Ultimately, obviously, like Canada has really been leading within this as well. But it's really an area where I don't see SMRs being meaningful contributors until the earliest the early part of next decade, call it 2032 to 2035. I think at that point, they could be really important, but there's still that's a bit outside of the horizon at this time frame for us.
Martin Lefebvre
What about AI altogether? How does infrastructure play a part in all of that, beside perhaps the energy play?
Noah Hauser
It is going to be incredibly powerful. In fact, it's the most powerful thing, I think, that's going through the asset class right now. Obviously, we've spoken about how this manifests itself in the form of an expanding opportunity set for investment. But really importantly, it's also going to play into affordability. And if there was one risk that really concerned me, it would be affordability. We're going to invest so much that bills rise too fast and it becomes an inhibitor to more investment. What gives me comfort around that and what we've done proactively is really focusing on areas where there is growth and where there is a consistency of regulation. When you look at this portfolio, we don't have a lot of exposure to New York, to Illinois, to California. These are all areas that have been subject to kind of more intervention, government overreach. So really trying to focus in those jurisdictions where there's a consistency of regulation and fair treatment.
The other thing too that goes hand in hand with that is as demand grows, ultimately, these are companies that it has a very powerful and positive effect from a cost standpoint for the end consumer. You want to be in places where there's more investment, where there's more growth ultimately, because that allows you to share those costs over a greater denominator, ultimately. It has a dampening effect on overall kind of the increase of rates versus what you would otherwise be seeing. And it gives me comfort because we've taken steps to put this portfolio in a position where the companies really are benefiting from this growth in demand that has had really important effects from an affordability standpoint.
I'd also say we're very much in the early innings of these companies truly implementing AI from a cost standpoint in their own cost structures. The energy and utility infrastructure space is ripe for opportunity there. And ultimately costs are a pass through to whatever extent that they're able to better manage O&M, operating and management expenses, with AI, that's something that's going to accrue very favourably to many of our companies.
Martin Lefebvre
If we go back to our main subject, is trends in real assets, would you say the weight of data centres and utilities and whatnot has increased tremendously over the past couple of years? How do you play that? How do you diversify your portfolio to take hold of that?
Noah Hauser
That is absolutely what I've done within this portfolio. We own more utilities now than we have at any point in my career. And that really is a reflection of the secular growth story of what truly is a generational opportunity for investment. What we're going through right now is the biggest period of investment since air conditioning. I'll let that sink in for a second on just how significant this is. This is an enormous deal that that we're in the midst of right now and I would argue still the very early innings of it. That is that's incredibly important and something that that makes me very excited now. That being said, it's something that also I think plays into the fact that when you look at the markets today, there's enormous skepticism. There's some uncertainty. There's uncertainty around the path of the global economy and what ultimately is going to happen. That is an environment in which infrastructure can thrive. I have taken steps to move this portfolio in a direction where it has the resiliency, which is the hallmark of infrastructure and real assets, while still also maintaining on positions where there's a greater inflection or visibility on growth going forward versus other opportunities.
Martin Lefebvre
You mentioned a backdrop that's quite positive and obviously there's a lot of deregulations going on in the U.S., more favourable environments, certainly more pro-growth on the part of the Trump administration. What are the main risks in your view? You mentioned Nvidia, not to name it again, but elevated multiples everywhere. What are the risks of this frenzy or frothy market ending sometime in 2026. What would be the impact on your portfolio?
Noah Hauser
What you're highlighting right now is one of the many reasons why I find the backdrop for the asset class to be so attractive. One of the few things that I can be confident in right now is that valuations are high and that there is a general kind of caution or skittishness on that of investors on the overall market just because of valuations.
A hallmark of infrastructure is resiliency, its downside protection. That comes from just the highly contracted, regulated, visible earnings and cash flows that our companies generate. To the extent that an investor has hesitation around broader market valuations or can equity markets keep up after a really, really strong period here? That is when infrastructure can thrive. Because many of our sectors are still quite attractive relative to the market when you look at historical multiples. As a result, that's what gives me even further conviction and why right now is such an attractive time for infrastructure.
We haven't talked about inflation yet, but that's something that again with today, that's now back in the news. It's something that's being focused on, is that going to push out further rate cuts because of concern there. Infrastructure, again, is a great asset class in more inflationary environments, and that comes directly from the sectors that we're investing in. What are great sectors in a more inflationary environment? Pipelines are fantastic. One that's maybe less commonly thought of: waste companies. Incredibly effective at passing on inflationary increases, protecting margins, even expanding margins within that backdrop. It's just further argument for why infrastructure can be a full cycle investment, why it should be a full cycle investment, but why I feel like right now it's such an attractive time.
Martin Lefebvre
That's sector wise or more sort of a use that as hedge. The AI trade is certainly more U.S. focused. Are there parts of the U.S. that are more relevant and all of that? Geographically speaking, are there opportunities outside of United States?
Noah Hauser
The early edge and the greatest opportunity right now is in the United States. The value though of being with someone with an experienced global manager is that we all know that things run in cycles. They might start in the United States and then they migrate to Southern Europe, they make their way up. There are patterns to this ultimately. And while the United States is certainly the area where there's the greatest investment right now, when we speak again next year and the year after, I think that you're going to continue to see increasing opportunities abroad. It's just right now much of the focus is on United States.
Martin Lefebvre
At the last FOMC (Federal Open Market Committee) meeting, U.S. Federal Reserve Chair Jerome Powell was not too reassuring saying that a cut in December was not a foregone conclusion. But then the market expects that there's going to be more rate cuts early in 2026. What's your point of view on that? And how does lower interest rates affect infrastructure or real assets altogether?
Noah Hauser
In a really positive way. Because of the nature of the cash flows that our companies generate, with their very visible long-term contracted nature, falling discount rates is very powerful and very important from an overall value proposition standpoint. It’s absolutely something that would positively influence the valuations of the companies that I'm investing now.
Martin Lefebvre
AI think that's all the time that we have today. Thank you very much for sharing your thoughts on real assets. Thank you for participating.
Noah Hauser
Thanks so much for having me. I really appreciate it.
Martin Lefebvre
And for everyone listening, thank you for tuning into this NBI Podcast. We'll talk again soon. Thank you.
Martin Lefebvre
