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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title=”Moderator” el_class=””][vc_empty_space height=”10px”]
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.
The demand for AI driving data centre construction might be “insatiable”, but the chief investment officer of the $115 billion UniSuper thinks that investors could be taking on technology debt and misreading the regulatory tea leaves as they rush to buy digital infrastructure.
Convincing policymakers to reform laws around infrastructure, carbon emissions and other aspects of long-term, sustainable economic growth may not be easy but a G20 group has started the dialogue.
The £30 billion ($38 billion) Brunel Pension Partnership, the asset pool comprising 10 of the United Kingdom’s local authority pension schemes, is finding significant investment opportunities in private-sector renewables infrastructure.
Investment in African infrastructure has the potential to provide favourable returns, along with opportunities to make a big social impact. Study up and look past the headlines, Mercer writes.
Canada's Healthcare of Ontario Pension Plan is considering adding to its celebrated strategy with moves into reinsurance and infrastructure, based on forecasts of rapid growth in its assets.
AI and other advances are making assets like toll bridges more challenging. Opportunities are emerging from privatisation but the days of 'set-and-forget' may be coming to an end.
EDHECinfra proposes industry standard benchmarks for infrastructure, based on a framework for measuring risk-adjusted performance and the results from its survey of investors.
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