Investors who are looking for diversification, protection against inflation, and resilience in adverse market conditions, while also seeking the potential to earn substantial returns, may find infrastructure investments particularly appealing.
The definition of infrastructure has evolved over the past two decades. In the past, investors mainly viewed infrastructure as a limited range of enterprises, such as roads, airports, railways, and regulated utilities. However, today, essential infrastructure encompasses not only transportation and utilities but also digital, energy transition, and social infrastructure.
The broad concept of infrastructure serves as a cornerstone for prosperous economies and societies.
The surge in data usage, transmission, and storage has elevated digital infrastructure to the status of a fourth utility. Meanwhile, the pursuit of carbon reduction, attainment of net-zero, and assurance of energy security have transformed the infrastructure necessary for the worldwide energy transition into one of the most thrilling investment prospects. Additionally, social infrastructure, comprising education and healthcare, has expanded and necessitates further investment.
Nowadays, infrastructure has established itself as a distinct asset category that can compete with private equity, real estate, and private credit. It lies at the intersection of the most significant long-term developments related to digital and energy requirements. Infrastructure benefits from groundbreaking advancements, emerging technologies, government funding, and policy support. According to Goldman Sachs’ research team, an estimated $6 trillion will be required each year during this decade to achieve global decarbonization and clean water objectives.
Over the past two decades, the expansion of the infrastructure asset category has been remarkable. Infrastructure funds amounted to approximately $50 billion in 2006, with sovereign wealth funds, pension funds, banks, and insurance companies being the primary capital investors who were in search of dependable, predictable, and inflation-linked cash flows that matched long-term liabilities. The initial attraction to infrastructure for early investors was its tangible asset characteristics and its appealing risk-adjusted returns.
Investors who aim to diversify their portfolio, safeguard against inflation, and mitigate downside risk while aiming for high absolute returns, may find infrastructure investments especially appealing.
