Societies need to invest trillions in roads and pipelines, electricity and hospitals. Institutional investors seeking income, diversification, a match for long-duration liabilities and inflation protection are natural partners. Meeting both sets of objectives is not a simple matter, however. We see three paramount themes that can guide investors:
- Infrastructure has now emerged as a distinct asset class, and understanding its evolution can help improve investment outcomes. Aggregate capital under management in infrastructure funds rose from $1.1 billion in 2004 to $317.5 billion at the end of 2014.
- Investors are learning to work with a larger strategy toolkit—and for good reason. Competition for operating assets in developed markets is strong. Some investors are now looking to a fuller range of strategies and geographies and learning to tailor investments to desired outcomes.
- The best way to navigate the expanding infrastructure landscape is to find the fast rivers. By fast rivers, we mean sectors or geographies experiencing fundamental change or growth, resulting in increased opportunity and deal-flow for investors. Examples include:
- The US energy sector, where much of the infrastructure investment for the last 30 years was premised on falling domestic production of oil and gas, rather than the surge resulting from shale extraction.
- Developing economies, where reforms in countries such as Mexico and India may create opportunities.
The geographic dimension of infrastructure investing is changing fast, as countries around the world institute programs to attract private capital for infrastructure development.
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