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.
India’s new sovereign development fund has raised a further £1.3 billion, on top of the government's $3 billion, to finance domestic infrastructure and growth. Key to its success is the unique investor-owned structure, similar to Australia's IFM Investors, and generous co-investment terms.
Coordinated fiscal and monetary policy threatens central bank independence and raises the odds that fiscal policy will be overused, igniting inflation. And investors will have a window of opportunity to pick up select real estate and infrastructure investments at recessionary prices.
SWFs are struggling to source deals in infrastructure as the demand is much stronger than the supply, so they are relying on new ways of investing in the asset class, mainly accelerating early-stage investments in renewable technologies, and with novel partnerships and co-investment structures.
In this third and final article on the EDHECinfra/G20 survey of infrastructure benchmarking practices the role of infrastructure investment benchmarks for the purpose of risk management is discussed.
The United Kingdom’s £31.4 billion ($39 billion) Pension Insurance Corporation, an insurance company specialising in securing the liabilities of defined benefit pension schemes, is growing its infrastructure allocation to renewables and student housing and pushing into new markets in the Ireland and Spain.
The EDHECinfra/G20 survey of infrastructure benchmarking practices, which included representatives of 130 asset owners accounting for $10 trillion, has found that existing performance monitoring benchmarks are self-defeating for asset owners and managers. But improvement, in the form of a more representative, better defined benchmark, may be possible thanks to recent progress.
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