Infrastructure – Feature
INFRASTRUCTURE: BUILT TO LAST?
Infrastructure could be a stable investment in uncertain times, but where is the opportunity and are investors ready to grasp it? Fiona Nicolson reports.
Just as the Covid-19 crisis started to fade, more trouble appeared on the horizon to dominate the economic environment. At one end of the scale, the eruption of the war in Ukraine and at the other, rocketing inflation and interest rates. Some asset classes have struggled amid the storms of the 2020s. But, according to Preqin’s 2023 global report on infra- structure, investors “flocked” to unlisted infrastructure in 2022 “amid rising inflation, a global energy crisis and intensifying pressure to accelerate the energy transition”. The data provider also forecast that it would be the second-fast- est growing private asset class on the basis of asset under man- agement. Its end of year report anticipated a 13.3% compound annual growth rate (CAGR) up to 2027, behind venture capital at 19.1% CAGR over the same period.
Infrastructure, which emerged as an asset class more than a decade ago, has evolved in that time. Described by McKinsey as “traditionally staid and stable,” the consultancy says it has been shaken up “by revolutions in energy, mobility and digitisation”, with next-generation assets emerging, such as battery storage, smart motorways and data centres.
Standing strong
There have been some bumps in the road, though. Preqin’s Q1 2023 infrastructure report acknowledged a “difficult start to 2023” due to a slower pace than anticipated with $3.1bn (£2.4bn) raised by 11 funds. This is only 9% of the quarterly average of the past five years. But the report also said that “the asset class is on the right trajectory, longer term”. Survey results, published in July, by real-asset investment man- ager Patrizia have affirmed the enduring attraction of infra-
structure. The firm’s third annual survey of its international institutional client base found that more than half (60%) of the 122 respondents are planning to expand their allocation to such assets during the next five years. It also showed that 11% of these investors are planning to do so by more than 10% − a drop from last year’s 20%, which Patrizia attributes to “the more tentative outlook on the current market environment”. Commenting on the infrastructure trends revealed in the survey, Graham Matthews, the firm’s chief executive of infrastructure, said: “Investors understand that the global megatrends of decar- bonisation, digitalisation, urbanisation and demographic change make the long-term picture for infrastructure highly attractive.” Its reputation for stability is another reason why investors expect to increase their allocations, as Darryl Murphy, Aviva Investors’ managing director of infrastructure, says: “Investors recognise that infrastructure provides long-term, stable cash- flows with good linkage to inflation.
“It has proved itself resilient to economic downturns, as wit- nessed during Covid and through other recent macro-econom- ic challenges,” he adds. “It also exhibits strong ESG character- istics, which an increasing number of institutional investors want to see reflected in their exposure to the sector.” Marija Simpraga, infrastructure strategist at Legal & General Investment Management Real Assets (LGIM), also points to the attractions of resilience and stability. “As infrastructure has emerged as an investible asset class over the last 10 to 15 years, a big part of the story has been about access to stable and robust income.”
She also highlights how institutional investors are increasingly aware of the opportunity in infrastructure – in debt and equity.
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