Ep61 Asia's energy transition: where private capital sees value, ft Luke Edwards, Brookfield

Asia is at the heart of the global energy transition, presenting a once-in-a-generation investment opportunity. In this episode, Luke Edwards of Brookfield discusses the crucial role of private capital in funding clean energy solutions, the challenges and opportunities in emerging markets, and how investors can navigate this evolving landscape. From large-scale renewables to business transformation strategies, discover what’s driving the shift to a low-carbon future — and why now is the time to act.

RESOURCES:

• Brookfield Launches Emerging Markets Transition Fund with Anchor Commitment from ALTÉRRA Alongside Investment in the Brookfield Global Transition Fund; Both Funds to Help Deploy Over $20 Billion in Climate Initiatives
• Brookfield Announces $10 Billion First Closing for Second Brookfield Global Transition Fund

ABOUT LUKE: Luke Edwards is Head of Australia and New Zealand for Brookfield’s Renewable Power & Transition Group. He is also Head of Japan for Brookfield. In these roles, Mr. Edwards is responsible for the growth and management of renewable power and transition investments in Australia and New Zealand, as well as Brookfield’s overall growth in Japan. Mr. Edwards has previously served in Brookfield’s Infrastructure business, where he focused on investment origination, analysis and execution. Prior to joining Brookfield in 2021, Mr. Edwards held various roles across engineering, commercial and investments sectors, including a director position at Citi. He has also held roles at Goldman Sachs in its power, utilities and infrastructure investment banking teams and has experience as a field engineer for Schlumberger in Brazil and Alaska. Mr. Edwards holds Bachelor of Engineering (Civil) and Bachelor of Commerce degrees from the University of Sydney.

HOST, PRODUCTION, ARTWORK: Joseph Jacobelli  |  MUSIC: Ep76 onward excerpts from Vivaldi’s La Follia, played by Luca Jacobelli.

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Ep61 Powering the Future: Private Capital’s Role in Asia’s Energy Transition, ft Luke Edwards, Brookfield

PLEASE NOTE: Automatically generated transcript may contain errors. For accuracy, rely on the original recording.

Joseph Jacobelli: Hello, Luke. Thank you very much for joining us from Tokyo. Thank you so much for participating in the Asia Climate Finance Podcast. 

Luke Edwards: It's great to be here, Joseph, and thanks very much for having me. 

Joseph Jacobelli: Maybe before we get into the questions, could you perhaps just share a personal intro, maybe also mention your personal involvement in Asia's energy transition and something beyond the bio, which we have in the show notes.

Luke Edwards: Sure. Well, I. Maybe the best place is to start with, with my role at Brookfield. And what I do on a daily basis here in the region is work predominantly across Japan as well as Australia and New Zealand. And the real focus is identifying opportunities to invest in the energy transition and working with many of my colleagues in other parts of Asia too.

 We've got quite a big business here in the region and we look at multiple different asset classes and in multiple different countries and it's quite an exciting place to be for us now. 

Joseph Jacobelli: Yes, with, 50% of the world population, 50% of energy consumption, it is quite an exciting area. I think many people will have heard of Brookfield, but could you just maybe share a couple of words about, the company in general? 

Luke Edwards: Sure. So Brookfield is an asset manager focused on managing, owning, and operating alternative assets.

We operate across five primary strategies, and those are infrastructure, renewable and transition property, private equity and credit. And as of the end of last year, we manage about just, just north of us, $1 trillion of our money as well as our clients' money. 

Joseph Jacobelli: Right. Right. And how and why did Brookfield start to focus on, investing in the energy transition assets and solutions? 

Luke Edwards: Yeah, so our, our history goes back quite a long way. And, and without giving you the blow by blow of everywhere we've been and everything we've done, 

Joseph Jacobelli: that would take, that would take a while.

Luke Edwards: It would. I think the best place to start is our investments in hydropower in the 1980s. 

Before it was called the renewable industry actually. 

And in 2010 when we saw more and more interest in the space and also started spending more time looking at the sector. We started investing more in the renewable asset class. And that was at a time when oil was quite cheap.

It was readily available across the globe. And really climate change wasn't a very widely held concern in global markets. But we saw an opportunity there to take our expertise and our knowledge of building property, financing property and owning infrastructure, building infrastructure and financing infrastructure to invest in this asset class and this sector as well.

Because a lot of the skills are very portable and, and transferable, right? And we, spent the 2010s investing in the renewable energy space and then at around 2020 there was, definitely an undeniable focus on investing in transition to net zero. And it's a little bit different to investing just in renewables because what we found was there was a lot of corporates and other investors that would happily look at opportunities, but negatively screen those opportunities, which means.

They would just choose not to invest in opportunities where there might have been a certain level of carbon intensity that was too high for them. It could have been buying a coal asset; it could have been owning a gas asset. And the negative screen was just not investing in those assets at all. And what we recognized was that you needed to go where the emissions are in order to facilitate the transition to net zero.

And so it means that for a point in time, you'll need to own companies that might have high emissions or be emissions intensive, but you put together a business plan that helps transition those companies and helps decarbonize those companies. And those two activities are complimentary with each other.

And create a good level of risk adjusted returns that we felt were appropriate to invest our own money as well as our client's money. And so in 2021, we announced our inaugural Brookfield Global Transition Fund Strategy, and that's our flagship transition fund. And now we're on the second vintage of that fund, and it's been a really great journey thus far. 

Joseph Jacobelli: Right, right. May I please ask roughly, and I'm sure that's publicly available information, what's the rough size of that fund? 

Luke Edwards: Yeah, so, so the first fund was in, in around the 15 billion US dollar level.

And the second fund is in the process of being raised, but it'll be just a bit bigger than the size of the first fund. 

Joseph Jacobelli: Got it. That's great. Thanks. 

So, looking at decarbonization as an investment theme, right? How, how big is this opportunity globally and then in Asia, and I'm thinking about the global investment opportunity, the corporate appetite for clean energy and the role of private capital there. Another question I was going to ask Luke is do any countries or sub regions stand out in terms of the energy transition investment opportunities or risks for corporations or investors in, Asia, at least the areas that you're looking at? 

Luke Edwards: Yeah. This is an answer that would change day to day, I think would be my first point. The opportunity is in the trillions, and we can put a multiple of trillions on it today and it will likely increase in the next six to 12 months. And that really is to say that the opportunity is enormous and it's a global opportunity that is really available for everyone and it's a once in a generation opportunity.

Asia's obviously a very big place. Right about half the world's population and also growing very fast. And so there's countries today that are very attractive and, and have great policy, regulatory and economic settings to invest. And there's some others that yeah, may take a bit more time to become more exciting from an investor perspective.

But I think we've, we've obviously got a very big business here in Asia and, and there's some countries that we have a much bigger presence in than others. But if I think about the risks but also the opportunity, the risks probably lie more in places like Southeast Asia. And but, but they, but they also provide an opportunity and the opportunity comes from. The, focus that we have had for so many years on investing in the transition in OECD countries. And, and there's, there's, there's obviously great reasons for that and, and there's, there's sort of a, a tried and tested history there of investment in the region in OECD countries.

But one of the things we've been really trying to do in our business in, in the last couple of years is, is crack the nut on investing in emerging markets and developing economies. Because it's all good and well to invest in OECD countries and decarbonize those, but if you leave the emerging markets behind, then you end up just pushing the pendulum one way or pushing the seesaw one way on emissions. Because you reduce emissions in one part of the world. But then as these other economies are growing those emissions increase. And so maybe in 20- or 30-yearsyears’ time, on a net basis, it's the same.

And so that's, so while they're riskier jurisdictions for many different reasons there's also a lot of opportunity there. And, and it's something that, that we've been quite focused on. And, and something I'd, I'd love to kind of dig into a bit further as, as we, as we go on. 

Joseph Jacobelli: Right. So thanks a lot for all the backdrops. Luke wanted to move a little bit about capital flows in general which I think is a really, really important subject. And funny enough, it's not something that a lot of people write about. There's not a lot of information out there. So can I ask first, what role does private capital play in all of this?

Luke Edwards: Yeah, it's a, it's a good question and I think the simplest answer is for, from my perspective at least, is. Private capital allows businesses to be patient. It allows businesses to have long-term business plans that can be funded to go through multiple market cycles and to think about their operations on a 10-year timeframe or a seven-year timeframe.

And that's very distinct and very different to businesses that might be listed on various stock exchanges, 

right 

who might end up getting caught in quarterly cycles or annual cycles. And a great example of that is if, if you want to build a new data centre, or if you want to build a new wind farm, by the time you've decided to build that piece of infrastructure, and you've done the planning, you've organized the finance, and you've built it that can take five to seven years. And that's probably on a, a quite an aggressive and quick schedule. 

Luke Edwards: If you are, if you are announcing that project and you're a publicly listed company and you have investors that come in and out of your stock it can be very hard to have the certainty and conviction about funding that project.

But when you think about it in a private capital setting, when we make an investment and we put together a business plan, we, we carefully put that business plan together, having regard to the capital that we're going to put in upfront as well as where we'll source the capital from to build the respective projects that we're building. And so that gives us a lot of confidence and the company and the management team that are working on those projects that the money will be there and that the project will be able to be funded.

And that's quite different to what can transpire in a lot of publicly listed settings because a lot of publicly listed companies can be impacted by various exogenous factors and outside factors that are out of their control in whether it be disturbances in capital markets, whether it be just disturbances in markets in general.

And so when you think about our real advantage, it's that we can look through the cycle and think about business plans on a much longer horizon without, without having to deal with the day-to-day movements or the, the quarter-to-quarter movements in share prices. 

Joseph Jacobelli: Yeah, I think that there's, in general, in the markets a little bit of a mismatch in terms of expectations, especially from listed companies, right? Because at the end of the day, we're talking about the energy transition is not going to take place in one day. All of these assets and even solutions are long-term duration assets which take a long time to plan, may take a little bit of time to build and are going to be lasting for 10, 20, 30 years or longer.

So there's, there's always a mismatch there, right? So how do you think investors should think about the transition including the dual objective of growth and decarbonization? 

Luke Edwards: I think both of them are extremely complimentary.

There's a lot of great opportunities to invest in the transition and decarbonization and make really strong risk adjusted returns. And that's when you think about it across multiple sectors and multiple different asset types, and, and that's definitely something that we've seen in our journey as we've been investing heavily in the, the transition.

Joseph Jacobelli: And related to that, how, and I'm just asking, not just from Brookfield's perspective, but just in general, your personal view based on what you see, where do you think investment sentiment is at right now? And, what's the appetite specifically in Asia? Because on the one hand you mentioned that there is this kind of, not contradiction, but challenge that a lot of very often where the opportunity lies, for example, Southeast Asia, 600 million people, fast growth, et cetera, you still got a developing kind of regulatory system, so the risk element is still quite high. So from your own personal perspective, where do you think investment sentiment is at right now, and what's the appetite for transition investing? 

Luke Edwards: I think the sentiment is best summarized as cautious. I think there's a, there's a lot of investors and a lot of people we're, we're speaking to regularly who are very focused on making sure they, and we don't get distracted in short-term events. 

Luke Edwards: And I think that's really important because when you are a long-term investor and you're an alternative asset manager, we look over 20, 30, 40-year time horizons.

Luke Edwards: And so if it's the government in the US or whether it's a, a conflict in Asia or whether it's the domestic economy in China. Whatever you want to point to these are all little blips along the way when you zoom right out and look at the really long term and so, 

I think it's really important that we don't get distracted and take our focus off, the main game. Because if the focus today is and, and the thing that, that just is always is in the headlines in the 24/7 news cycle at the moment is tariffs and the tariff wars. In three years’ time it's going to be something else. In six years’ time it'll be something else again. And so what we are focused on is finding those opportunities where we can find the appropriate risk adjusted return for the capital that we're investing and continue to focus on our mandate, which is investing in transition.

But we do have to be, like I said, cautious on that because it's very easy to get excited about opportunities that might be a fad or that might be unnecessarily propped up by different market forces that might only be short term forces. And so, we have to continually go back to the fundamentals in order, in order to be cautious, 

Joseph Jacobelli: right?

But I mean, the market signals, or specifically when it comes to energy transition related assets or solutions, the market signal being from the governments that, that's kind of pretty much key, right? I mean, you do need the green light from the local government saying, okay, we're into this. We really want to do it. Come and invest. That's pretty key. And the reason why I was asking that is because, of the country you're coming from Australia, where if you look at the government signals in the past, say, 15 years one could say it's been kind of varied at least at the federal government level. So at the state government level, you had a very strong green light in most states. At the federal government level, you had a little bit of an amber to red light, then that light changed to green. So that's, that's quite key, wouldn't you say? 

Luke Edwards: Yeah, it is. And the, the Australian example's a good one.

We purposefully stood on the sidelines. We, being Brookfield stood on the sidelines for a good 10 years until there was energy policy certainty. And that came with the bipartisan support of, of the, the Climate Change Act that was passed at the end of 2022. So having bipartisan support and strong regulatory setting, strong rule of law are, are really important parts of, of investing.

And that goes for other countries as well. But it's not just a, you, you, you need, they're sort of the, the basic settings, the, the basic settings that support the development and the investment in renewables are really important. But then there's another element of government that often gets overlooked and it was the early-stage government push to get renewables into the system.

If you cast your mind back 10 to 15 years ago, there was a lot of countries, and there still are a lot of countries in various parts of Asia that are supporting the investment in renewables through various mechanisms like feeding tariffs or decarbonization auctions, like in the case of Japan.

And that's good for investors because it provides economic support for a lot of different opportunities. And it provides certainty, and it provides long-term revenue streams. But the real critical thing is that. Investing in renewables stands on its own two feet, and that the projects you're investing in are economic.

And that is what then helps with the corporate pool because you have corporates who consume a lot of energy. And if you just look at the, the companies that build own, operate data centres or those that provide technology services and consume a lot of energy from data centres, the lowest cost form of energy for them is renewable energy.

And so it's making sure that the product that you are, you are making, or the product that you're selling in very sort of simple economic terms is. Economic, and it is the cheapest form for those businesses because if you're not providing the cheapest form of power, they're going to go somewhere else.

And if they don't have cheap form of power, they're not going to be economically competitive against their peers. And, then you start zooming back out and you go, well, okay, if there's a country that's not supportive of a really low-cost energy environment will that country be competitive?

If you roll through 20, 30 years and, and all of those companies compete in that, in that, in that country that are competing on a global scale, if they're not competitive, then the country starts to become uncompetitive. So that means that you really need to make sure that you've got great settings in countries to support the investment in renewables, but you also need to make sure that, you've got demand from corporates. 

Joseph Jacobelli: Okay. Okay. And I guess another point is also that if you're a data centre and you're getting renewable energy, not only getting cheap power in most cases, but on top of it, the price of that power is very stable. Because it's renewables as opposed to gas fired generation or coal fired generation, which can be quite volatile. Right. And somebody's going to lose, right? I mean, you may have a long-term power purchasing agreement based on coal fired generation, but somebody's got to take a hit, either the purchaser or the seller if there is volatility on those prices.

Right? 

Luke Edwards: Yeah. And I think what's become very clear in a lot of markets is that the volatility will be there. Even with renewable generation, because we can't control when the wind blows or the sun shines. And, and that's where affirming is really important. 

Luke Edwards: What we also need to recognize is that providing a hundred percent renewable solution is not the most cost effective today.

And we recognize that. And, and I think a lot of others recognize that as well. And so when we talk about investing in renewables to increase their penetration in the energy mix, that's all about trying to displace coal fired power stations and other legacy thermal power stations. 

But recognize that when you think about the energy mix in 2050, there's going to have to be different technologies that are going to serve different purposes.

And a good example of that could be gas. There might, still need to be. And a lot of the energy modelling that gets done in various places, like you can think about the energy modelling that gets done in Australia. The market operator forecasts that there will be gas in the system in 2050.

And that is just as much for energy security and reliability as it is for firming, low cost, renewable energy. And so the volatility that you get, that comes from having old coal fired power stations in the system, in whatever country that's caused, because those power stations are near the end of their life, they tend to have technical issues that mean there's parts of the system that can break or there's parts of the power generation units that, don't work anymore. And that's very different to a system that has renewable energy in it. Where you are, having to rely on the wind and solar. So what would, I rather, I would definitely rather a renewable future that, yes, it is dependent on the weather but does have, some form of firming. That that is in most cases a thermal solution like gas, because that will be, on average, the lowest cost solution for, for our customers. 

Joseph Jacobelli: Right, right, right, right, right. So Luke, we, we talked a little bit about the backdrop and, the landscape. We talked a little bit about the broad capital flows and market signals. Could we maybe have a couple of case studies to put a little bit of colour and all that before, we wrap it up and ask you for your outlook. So Brookfield recently launched its first fund dedicated to transition investing in emerging markets. Can you tell us a little bit about the strategy of that fund?

Luke Edwards: Sure. It's quite simple. What we're doing is we're taking the investment strategy that we've used through our flagship fund.

That's the BGTF Brookfield Global Transition Fund that I mentioned earlier, that's been investing in OECD countries. We're taking the exact same strategy from that fund and we're applying it to emerging markets. So the themes of the fund that we're going to be using to invest in emerging markets are three very simple themes. Those themes are business transformation, clean energy, and sustainable solutions. And I'll just give one example out of each of those themes just to help bring that to life. I. Business transformation is about buying carbon intensive businesses or partnering with carbon intensive businesses and using our capital to help them transition to a cleaner future or a cleaner form of power or a cleaner form of operation.

And through, that investment, reducing that company's emissions. Clean energy is investing in renewable energy sources, building wind, solar, and, and battery developments. And the third one, sustainable solutions are other technologies and other parts of the energy transition or the, the transition to net zero that are going to be really critical to decarbonizing various industries.

Those types of investments include things like carbon capture. Recycling and operations in renewable natural gas and biogas.

And so with the emerging markets fund the catalytic transition fund, we call it, that fund will look at three emerging markets globally. There'll be Southeast Asia, India, and South America.

And we'll be looking for opportunities in those markets across those three themes.

Joseph Jacobelli: Got it. But I, I guess in terms of like sustainable solutions, there's also digital solutions, but I guess that investing in digital solutions related to the energy transition would be very attractive, especially in energy markets. But I guess the ticket size would be to too small for a fund like yours, would that, would that statement be correct?

Luke Edwards: No, I think investing in, in digital, so I think this is two, two parts there, investing in aspects around digital or digital infrastructure are not the mandate per se. So our mandate is not to go and build data centres, but our mandate would be to provide electricity to data centres.

Luke Edwards: And then that that would be one great example. So yeah, it's, it's public that we have a framework agreement with Microsoft, and we might go to work with Microsoft in Indonesia for example, to invest in providing a power solution for a data centre that they have in that market.

Now what, what you find in, in markets like Southeast Asia is there are a lot of very small investments and there are a lot of opportunities that are much sort of, I guess lower than the, the typical equity check. We would like to; we would like to invest. But that, that creates opportunities because as the market gets bigger and bigger there's less sources of capital to do the larger opportunities.

That's point number one. 

So, you start to have a bit of an advantage by having scale capital but two, when you look at investments, you can't just look at, especially when it comes to the transition, and especially when it comes to our mandate, which is focused on additionality. And that's about making the environment or the place you've invested in better than where you found it. And that means you actually have to build. So you can't just buy a solar farm that's operating, own it for 10 years and then sell it because you haven't done anything. You haven't created additionality through that. 

So when you look at investments, you might look at a very small seed investment but that business you're buying or that opportunity you're investing into might have a big pipeline of other projects that need to be built.

And then when you take into account all of the capital that needs to be contributed to building out that pipeline or growing that business. That then starts to become very attractive for the type of fund we have and the size of fund we have. So, yeah, we don't see that really as an issue in Southeast Asia.

And, nor do we see it as an issue in other markets. My colleagues in India continue to tell me how much capacity in India alone that needs to be replaced. And it's multiples and multiples of some, some large countries in other parts of Asia. So there's definitely no shortage of opportunities. 

Joseph Jacobelli: Very interesting. Very interesting. A couple of quick questions before we move to just an outlook and some thoughts from you. You mentioned the fund before. Could you tell us a little bit more about the catalytic, capital component and why it's important and also related to the fund. What markets within Southeast Asia are you focused on investing in? 

Luke Edwards: Yeah, so the, the catalytic transition fund, I know it's a bit of a mouthful is a, it is, is a, yeah. And, then actually the definition of catalytic can, can confuse people at points in times that I have had people ask me whether it's about. Investing in new technologies, and the answer is obviously no. And, and it's, and I think it's something to, to point out here is that we are not creating a new fund to go and invest in new technologies. That's definitely not in the mandate. We want to be investing in established technologies.

Luke Edwards: But the catalytic component is, is about driving change. And it is about recognizing the point I was making earlier about being a catalyst in emerging markets and, and, and investing dollars in emerging markets as opposed to focusing on OECD countries. 

Luke Edwards: But, Yeah, the catalytic component of the fund is a $1 billion commitment from Alterra.

And that commitment from Alterra is subject to a capped return and, what that means is any return or any profit above that capped return gets distributed to the other investors in the fund. So it, it creates a bit of a return enhancement for other investors who are investing in the fund without taking any more risk.

So if, just, just for argument's sake, if you have an investment that got you just a standalone investment that got you an X percent return, so without the catalytic capital, you would get X, but when you add the capital catalytic capital in there, you'll get X plus a small premium on the capital that you've contributed because Alterra have capped their return.

And so the unique part about all this is that. The commitment sits across the whole fund. What you generally find in a lot of these financing arrangements that, that have either concessionary capital or other types of catalytic capital, you normally need to go and find that type of concessional capital on a project-by-project basis.

Joseph Jacobelli: Right. 

Luke Edwards: And that makes it, that makes the investment sourcing process much longer. It makes it a lot more difficult as well. And so what we've done here with alter, through this partnership is to, is to put that, that concessionary capital across the whole fund and make it more attractive for other investors.

And, and what it does is it seeks to crowd in more investment because if you can make the investment, proposition more attractive for people and investors to come in. Then just in very simple terms, if you have a good experience and you make a good investment, then all else equal, you'll want to continue to invest in that market. And, the better experience everyone can have, investing in the transition in these markets, the better it is going to be for the long term. 

Joseph Jacobelli: Right. And, and the second part of the question was, and I'll, I will ask, will ask one, one clarification in a minute. What, what markets within Southeast Asia, are you Oh, sure. Are you Yeah. Particularly focused on 

Luke Edwards: Sure. So the, the markets we're focused on, in Southeast Asia specifically is I. Malaysia, Philippines, Thailand, Vietnam, and Indonesia. They're the, they're the ones we, we spend the most time in. I know Southeast Asia is a very big place. But, but they're the ones that, get the most of our attention.

Joseph Jacobelli: Mm So it's, it's really just the, the, the bigger, the bigger markets there. Right. And one question I was going to ask about the X that you mentioned, the risk adjusted returns that you're going to get in, say, Indonesia versus Vietnam versus Malaysia, versus Australia versus Japan.

All of these are very different returns, right? So do you think about that in terms of, and I'm just going to pick a number out of the blue, say 10% that you want to get at 10% above the X is 10%, and anything above 10% would be that, that, know, the, the, the extra bit that you mentioned, or do you actually look at the return on a per country basis if you, if what I mean, because Yeah.

The cost of capital in Japan and, to some extent in Australia is going to be a lot of risk adjusted capital is going to be a lot less than say places like Indonesia or Vietnam or whatever. So how do you think about that? And the reason I'm asking is because when I, when I was an equity analyst, one of the biggest struggles I had was when companies say, well my return on invested capital in my home country is whatever, say 10%.

So anything that I do outside my country has to be at least 10%, which wouldn't make sense in a place like Japan, if it's a low-risk investment. Because your interest rates are so low, practically zero. So, so, you know, the mathematics are different from Indonesia where interest rates are not 0%. So could you tell me a little bit about these thoughts? 

Luke Edwards: Yeah, yeah. And it's in, and, and it's a good question, Joseph, because it, it's also a good point of clarification. We talk a lot about OECD versus non-OECD and mandate. And, and one of the, one of the things to clarify is that when we think about our flagship fund, BGTF, that fund does not have a mandate to invest in Southeast Asia.

So all of the investors in that fund are, are expecting that we're going to invest in Europe, north America. India, Australia and other OECD countries, they, they don't expect us in that fund to go and invest in Southeast Asia. 

Joseph Jacobelli: Right. 

Luke Edwards: And so that means the fund target for our global flagship fund is set at a level, so it has a certain target return, and then the CTF strategy or the emerging market strategy has a different return that is, that is higher.

So the relativity is that it is higher. 

Luke Edwards: And then, and then it has a mandate to invest in emerging markets. But we don't sit there and say, well, just because we're investing in Indonesia, we need to have a 300-basis point country risk premium, or we don't need to get Mm. 2% more because we're investing in Vietnam.

. What we do is we look at a range of opportunities and a portfolio of opportunities and target a return for that fund based on the risks we're taking in various countries. And it's also quite an interesting exercise to go through and something I think we take for granted when we're investing in OECD countries US dollar denominated businesses or right Euro denominated businesses.

We've got a very deep and liquid market for FX hedges across those currencies. There's a lot of countries in Southeast Asia that don't have that same level of depth in those markets. Right. So when you, when you, when you take the Indian Rupe and swap that to US dollars, the, the cost of that hedge might be more, well, it's definitely more than. Then hedging, say euro, euros to US dollars or Australian to US dollars. And that's, that's something that also needs to be considered when you're thinking when you're thinking about these markets.

And, and another thing that, that I think often gets overlooked is the US and Europe and Australia have very, very deep markets for senior lenders and banks. And when you start looking at other markets in Southeast Asia, you have a lot of discussions with local banks. There's, there's local banks who are willing to lend to certain situations, some banks and banking markets and some markets in Southeast Asia are more advanced than others. And then when you start looking at working with some of our existing banking relationships in say Asia or from North America or Europe, a lot of those banks use representative offices with local banks.

And so the transactions start to have a lot more parties getting involved than investing in other jurisdiction. So, it, it does create an environment where there's a little bit more complexity and a few more stakeholders to, to manage. And, and that, that's just, I, I think that's also one of the reasons why coming back to one of my earlier points, that sometimes if you've got a global investment committee that looks across multiple regions, OECD and non-OECD, and they see an opportunity that comes from the Philippines or see an opportunity, say a data centre in the Philippines, or an opportunity for a data centre in Alabama. 

Luke Edwards: It's a very, it's a, it's a very different decision-making process.

And it's not always the same. And so it's really important when you're assessing these types of opportunities that you are, you are thinking about them in the context of the region and you're thinking about them in the context of the, the risk adjusted return for that opportunity.

Because, because otherwise it's very easy for someone far away to say. Well it's just too complicated. It's too hard to think about. And that's the thing as investors we really need to manage because that's also another sort of indirect reason why capital would not flow to a lot of those, other countries as well.

Luke Edwards: And this all comes together. When you start thinking about, well, what are the, what are the settings that governments and regulators can set in their countries, various countries in parts of Southeast Asia and other parts of Asia that make it stable and attractive jurisdictions for investors to invest in over the long term?

Because if you keep those settings the same. People know the rules of the game, and if you know the rules of the game you can work all the other things out around it. 

Joseph Jacobelli: Right? I mean, consistent and transparent policy is the absolute I guess it's the first, the first stop for any, investor.

I, you've been extremely generous with your time, Luke. I, I was just going to ask one last question, and if you take your crystal ball the dusty crystal ball on your desk and look at your crystal ball where you think, and this is completely theoretical in your own personal point of view, based on how much time you spent on in, in this sector.

Where do you see things heading over the next 25 years are you cautiously bullish, cautiously bearish? Where do you see things happening in Asia over the next 25 years when it comes to the energy transition and the capital flows?

Luke Edwards: I am bullish on the region. And I know we've spoken a lot today about different countries being at different stages of the energy transition and 

Different stages of their own economic journeys and growth journeys. But Asia just has so much potential and different countries and different parts of the region are going to present opportunities over time. Mm. But, I think if I look towards 2050, I mean that, that's 20, 25 years away now I can see a world where we've got to a critical mass of renewable energy powering our region.

It's not going to be a hundred percent renewable. I think we'd be, we'd be fools to, to think that, and different countries are going to need different solutions. 

Some countries will rely more on offshore wind. 

Some countries might rely on nuclear. Some countries might rely more on solar plus batteries. But what I think has been really important about the past, I. Say six or seven years of the energy transition and all of the time that has been spent working on it and talking about it and in the various forums globally, locally in Asia, is that the train has been able to leave the station.

And I think that that's, that's really important. I was speaking to some people in the industry last week in Australia, and what we were talking about was how far from Australia has gotten to in terms of its commitments in the installation of renewable capacity. And I think the latest statistic is it's 48% renewable.

. Now what, what I think will happen is there'll be a good four or five years where the world continues to deal with various different challenges, but, but as long as. Everyone who is focused on investing in the energy transition just continues to chip away at it and continues to get on with it.

We're going to turn around in five years’ time and say, well, that, that 48 is 55, that four, it's 56, or it just, it's going to keep inching, inching up, and then we'll look back and say, well actually we've, we've gotten quite far, let's keep going. And, and of course over that time, technology changes, technology gets better.

You can already see the rapid advancement of battery technology, stationary, battery storage. 

There's a whole bunch of other emerging technologies that are sitting out there that will also be part of the mix that Yeah. We don't, we don't know about today. And, and that's, that's quite exciting.

So I'm, quite excited, the opportunities in the region and, and I think it's I. It's really important for the next generation because we've got the opportunity to improve the air quality. We've got the opportunity to create healthier cities and better living environments for the next generation. And that's, half the world's population. So it's quite a, quite a great challenge and, and an opportunity at the same time. 

Joseph Jacobelli: Right. Actually that's one of my favourite quotes. The train has already left the station, so, in the train may be going at different speeds in different countries or at different stages, but it's really left the station. So get on board and get the opportunities or just miss out on the opportunities. And that's what I often say.

Luke, I really, really appreciate your time. We've had a fantastic discussion. Thank you so much for clarifying a few things and for, all of your insights.

Luke Edwards: Thanks Joseph and, and thanks for, thanks again for having me. 

Joseph Jacobelli: Thank you. 

Another question I was going to ask Luke is do any countries or sub regions stand out in terms of the energy transition investment opportunities or risks for corporations or investors in, Asia, at least the areas that you're looking at?

Luke Edwards: Yeah, so I think the, the Asia's obviously a very big place. Right about 600 million people about half the world's population and also growing very fast. And so there's countries today that are very attractive and, and have great policy, regulatory and economic settings to invest. And there's some others that yeah, may take a bit more time to become more exciting from an investor perspective.

But I think the, the, the, the, we've, we've obviously got a very big business here in