Infrastructure

Infrastructure expenditure has amounted to almost US$1,600 billion per year throughout the world and is continuing to grow, with forecasts of close to US$1,800 billion by 2030. The sector is undergoing deep change as a result of demographic, economic and political trends. Firstly, world population growth and higher consumption of water, electricity and renewable energy, are encouraging higher infrastructure expenditure over the medium to long-term. Secondly, privatisations and states budget deficits and constraints have been increasing demand for private investment. Given this environment, specialised funds have become a key source of financing for infrastructure projects and represent an asset class in their own right. They are an excellent way for investors to diversify a traditional portfolio, as performance is only weakly correlated to other asset classes. Capital invested in the sector increased significantly over the period from 2000. Since 2005, more than 70 infrastructure funds have emerged throughout the world with total targeted funds raised in excess of US$90 billion (all funds), mainly invested in Anglo-Saxon countries.

Advantages of infrastructure funds:

Diversification

Returns show low correlation with other asset classes (listed equities, fixed income, real estate…)
Moderate and lower volatility compared with direct Private Equity investment and listed stocks in similar sectors

Stability and resilience

Essential assets, insulated from the business cycle
Regulated, monopolistic, high barriers to entry

Long duration

Essential nature of services supports asset longevity
Long-term cash flow supports long-term investment horizon

Risk adjusted return optimisation

Attractive performance objectives.
Moderate and lower volatility compared with direct Private Equity investments and listed stocks in similar sectors

Inflation hedge

Regulation or concession typically underpins pricing adjustment mechanisms
Commonly results in inflation linked cash flows