Fiscal policy, vaccines and green initiatives are creating waves of change in infrastructure. What exactly is infrastructure now, and most importantly what is not infrastructure? This session examined how the digitalization of economies and the shift to renewable energy offer potential long-term growth opportunities in infrastructure; and how it can play a role in long-term investor portfolios.[vc_quotes layout=”accordion” 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Key takeaways
In a panel session on opportunities in infrastructure investors noted how technological change is repricing assets and many investors are substituting fixed income with infrastructure debt.
US President Biden’s plans for sweeping infrastructure investment could have important investor consequences around tax cuts and renewables. Driving 5G development will enable greater penetration for tower companies and economically sensitive businesses like freight railway will benefit from growth.
Higher yields can be found in non-investment grade infrastructure allocations, but investors shouldn’t view this as a long-term strategy.
Renewables are often linked to quasi-guaranteed cashflows comprising long-term contracts with lower volatility. In contrast, digital assets will be subject to huge change as the “revolution” continues. Hence the need to adopt a shorter time frame investing in assets over a 3 to 5-year horizon.
In periods of high inflation, infrastructure credit risk falls. This is priced into how debt products are valued in the market, providing a “windfall opportunity.”
Investor areas of focus include renewables, telecoms and digital infrastructure given new trends in remote working.
Data is increasingly helping resolve intermittency challenges in renewables.
Stranded or obsolete assets could spike in traditional energy infrastructure as well as in assets subject to technological change. For example, technological disruption is growing in the satellite space.
Aware Super is considering a return to infrastructure funds after years of favouring direct investments. The infrastructure allocation currently stands at $15 billion and the fund sees benefits to access a “broader set of offerings” and opportunity sets via fund commitments to GPs, its head of infrastructure Mark Hector says.
AI is “the most consequential megatrend” for infrastructure investors with opportunities not only around data centres, but also energy and fibre networks by extension. But despite the bullishness, some asset owners are wondering when – or if – AI will deliver a miraculous productivity gain and benefit the underlying infrastructure.
In the latest development of its private market portfolio, Swiss pension fund PUBLICA is investing in infrastructure equity in a partnership with three other Swiss pension funds and Dutch pension investor APG.
The investment path to net zero may not always be clear. With no dedicated asset class and shifting risk profiles for energy transition-critical assets, the Fiduciary Investors Symposium heard that asset owners need to be flexible and ready to creatively make room in their portfolios when the right opportunities arise.
Investors can de-risk and increase the long-term returns of unlisted infrastructure assets by enacting forward-looking ESG transitions, investors say, but they need to ensure sufficient control at the board level.
Sujoy Bose played a central role in setting up India's celebrated sovereign development fund, the National Investment and Infrastructure Fund. He explains how NIFF's governance combines a perfect combination of sovereign comfort for investors seeking Indian exposure alongside the discipline and freedom to hunt returns.
Careful consideration of trends in Thames Water's cost of capital and volatility, calculated using an appropriate risk model, would have anticipated the operator's financial difficulties. The failure to recognise the loss in value at the right time raises the question of how to value this type of asset.
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