INVESTMENT ACTIONS

Infrastructure equity: crafting exposures

Investors can potentially bolster resilience and enhance returns by taking a holistic approach to portfolio construction that incorporates specialized primaries, complex secondaries and thematic co-investments.

Building balanced portfolios

For investors seeking to diversify their portfolios, primary investments serve as the foundational gateway into the asset class. Diverse exposure on a look-through basis typically reduces volatility and provides access to the full spectrum of opportunities. There has been a growing interest for partnership as clients look beyond established blue chip funds and seek help accessing specialized strategies like emerging managers and targeting specific sectors, regions or market capitalizations.

Adding secondaries or co-investments to portfolios of primaries can help mitigate risk, get exposure to specific investment themes or older vintages, and accelerate deployment of capital to reduce the J curve. In terms of portfolio allocation, we generally consider 50% for primaries and 50% for co-investments and secondaries as a mature, balanced approach. As clients increase their exposure to infrastructure and portfolios become more complex, advanced analytics will be critical to ensuring portfolio risks are fully understood and exposure, commitments and NAV development are optimized across all three investment types.

When co-investments are added to a portfolio, investors have the flexibility to target specific market dynamics and sectors. Co-investments have the potential to achieve above-average returns and can help investors optimize exposure to high conviction trends such as digital infrastructure or the energy transition.

Finally, secondary exposures afford investors the benefit of purchasing a portfolio of existing assets that are otherwise not available in the market. They also allow for a faster buildup of exposure, early distributions and typically are lower risk thanks to mature, substantially invested portfolios.

Modular portfolio construction

Integrating secondaries and co-investments into a portfolio of primaries

Modular portfolio construction chart

Source: BlackRock, as of May 2021. For illustrative purposes only and not a recommendation to take any particular investment action or to invest in any asset class.

Fast rivers: digitization and decentralization

As the demand for seamless, uninterrupted service with high bandwidth, ultra-fast speed and low latency continues to grow worldwide, we see data centers, cell towers and fibre as major growth opportunities; with e-commerce, solar panels, and smarter, more resilient power grids also demonstrating strong potential.

Another interesting phenomenon we’re seeing is a push for global food supply resilience and a focus on the related reconfiguration of last mile supply chains around the world. This is a sector undergoing rapid structural change as the trend towards e-commerce continues to accelerate.

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Another interesting phenomenon we’re seeing is a push for global food supply resilience and a focus on the related reconfiguration of last mile supply chains around the world.

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Some examples of investment opportunities in this space include river transportation for grain, specialized ships for offshore farming, and cold storage facilities for the transport of fresh and frozen food.

We expect this market to continue its growth trajectory driven by secular tailwinds including population growth, urbanization, increasing health-consciousness, an unabated demand for fresh produce, and the rise of grocery e-commerce.

Serge Lauper
Managing Director and Global Head of Infrastructure Solutions
Serge Lauper is the Global Head of the Infrastructure Solutions team. He is responsible for setting strategic direction and managing execution of the platform.
Expanding the real assets toolkit
Leveraging the full spectrum of real asset investments may be key to capitalizing on cyclical recovery opportunities. Learn more across three distinct asset classes: infrastructure equity, infrastructure debt, and listed real assets.
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