Allocations to listed infrastructure have been on the rise in recent years amid growing demand for real assets offering relatively predictable cash flows and the potential for attractive real returns. We examine the asset class’s historical investment characteristics and the secular themes driving significant capital formation in infrastructure globally.
- Compelling investment characteristics. Many infrastructure companies have monopolistic businesses that often have regulated or concession-based revenues—features that can help potentially reduce financial risk, generate attractive riskadjusted returns and provide downside protection.
- Policy imperatives driving long-term opportunities. Governments in the U.S. and elsewhere have been intent on using infrastructure spending to boost economic growth while making much-needed modernizations. As plans proceed, there will likely be growing incentives for increased private investment in infrastructure and privatization of key assets.
- Valuation support from private investment demand. There is a large and growing backlog of uninvested capital in private infrastructure funds, and these investors have been willing to pay premiums in a competitive environment.
- Strong secular themes. The global infrastructure investment opportunity is driven primarily by two distinct trends: the need to upgrade aging infrastructure systems in developed economies after decades of neglect, and the demographically fueled growth in new infrastructure associated with bringing higher standards of living to emerging regions.
- Innovative investment security structures. As cash-strapped governments increasingly turn to private markets to fill a capital void, new security structures have been introduced globally, including those focused on income delivery.
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