Infrastructure equity: crafting exposures

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

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.

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.