Feature – Infrastructure
“To gain exposure to resilient cashflows underpinned by robust fundamentals and strong ESG credentials,” Simpraga says. And Jerome Neyroud, head of infrastructure debt at Schroders, anticipates that infrastructure will stay steady. “In our view, val- uations are likely to go down in private equity. But we expect real estate and infrastructure to remain more stable and hence we will see a flight to quality from investors.”
Strong and stable
As well as revealing plans to increase allocations, Patrizia’s sur- vey discovered that almost half of investors expect a pickup in infrastructure transactions and opportunities during the next 12 months. Also, around a third of investors expect recurring income to improve this year, and more than half (55%) antici- pate recurring income from infrastructure to be stable. Tom Maher, Patrizia’s managing director of infrastructure, said: “Despite the economic uncertainty, the essential nature of infrastructure, combined with the tailwinds provided by the global megatrends, continue to drive demand and revenue for infrastructure.”
Looking at listed infrastructure, as well as at infrastructure generally, Nick Langley, a portfolio manager at Clearbridge Investments, points to the themes and trends that could pro- duce an ongoing source of income and capital growth. “Given the multi-decade themes of decarbonisation, greener transport and 5G rollout, more infrastructure assets will be cre- ated in the coming years, which will generate greater cashflows and support attractive investor returns, including income and capital growth.” Daniel McCormack, head of research at Macquarie Asset Man- agement, believes that the drivers of income growth will vary this year. “For some assets, the link between inflation and cashflows will drive income,” he adds. “For others, it is the exposure to struc- tural demand trends of digitalisation, energy transition and demographics. While for some, company-specific business plans are driving the expansion in income.”
Themes, trends and opportunities Reflecting on areas of infrastructure that investors are consider- ing, other than traditional assets such as roads, bridges and air- ports, Murphy says: “The energy transition requires significant investment over the next few decades and that will continue to provide the principal opportunity for infrastructure investors.” It is not the only growth theme in the sector. “Over the past few years, the other major growth sector has been digital infra- structure, namely towers, fibre and data centres,” Murphy says. “This sector will continue to grow globally, although investors are increasingly cautious around the issues of scale and com- petition in local markets.”
48 | portfolio institutional | September 2023 | Issue 126
Themes and trends we’re looking to avoid would be so-called ‘next generation’
infrastructure assets. Dan Ryan, Fidelity International
McCormack takes a similar view. “Demand for greater data connectivity has been growing rapidly, subsequently driving a demand for the infrastructure to facilitate that growth – such as data centres and fibre networks. We expect this to continue to grow rapidly in the future, particularly given the number of data-intensive technologies emerging, including driverless cars, the Internet of Things and AI, among others.” But there is still room for the traditional, core infrastructure assets, along with the more contemporary ones. “Traditional assets such as electricity and gas distribution networks remain a key part of any infrastructure portfolio. And as our energy system changes and evolves there may be an increased need for both of these types of assets,” McCormack adds. Patrizia’s survey results echoes the focus on these trends, find- ing that institutional investors are largely focused on decarbon- isation during the next five years and that more than a third (35%) plan to increase their exposure to telecommunication in- frastructure and fibre. As with all investments, there are risks, and in infrastructure there are themes and trends to be bypassed, says Dan Ryan, a portfolio manager at Fidelity International. “Themes and trends we’re looking to avoid would be so-called ‘next generation’ infra- structure assets that appear to be stable, secure and anti-infla- tionary, like traditional infrastructure assets, but actually hide secret correlations to commodities, economic growth or evolv- ing regulation and technology risk. Some areas of energy tran- sition, transport and digital infrastructure can show this trend.”
Why so low? Research published in June by capital advisory firm Hodes Weill and Cornell University’s Program in Infrastructure Policy, also concluded that institutions are “poised to continue allocating a significant amount of capital to new infrastructure investments”.
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