We think investors need to rethink long-term portfolio construction. Why?
First, long-term macro anchors that were central to building long-term portfolios for decades – like stable growth, contained inflation expectations and fiscal discipline – are adrift as the world undergoes a transformation. Second, today’s investment opportunity set has broadened, with the emergence of brand new assets - such as bitcoin - or more granular exposures, such as thematic equities, that together offer a much richer range of granularity than historic asset allocation blocks can provide. Assets historically labelled as "alternative" - from hedge funds to infrastructure - can be thought of as part of a core allocation in this modern definition of a neutral multi-asset portfolio.
In our Rethinking neutral series, we consider what a new “neutral” long-term portfolio looks like. Our first report focuses on hedge funds – and why we believe some investors could carve out more room for hedge fund strategies in portfolios. Our second report focuses on infrastructure and how mega forces are driving enduring infrastructure demand. Our third report rethinks portfolio construction in the age of transformation.
Read how we’re rethinking long-term portfolio construction
Infrastructure
Mega forces, like the low-carbon transition, AI and geopolitical fragmentation are driving multi-decade investment needs. Those long-lasting needs make listed and private infrastructure assets an avenue for tapping into enduring demand at attractive valuations, in our view.
Infrastructure assets – real assets essential to economies across transport, energy, digital and utility systems – have cash flows that are typically regulated over long periods, providing defensive attributes like stable cash flows usually linked to inflation.
We think the needed infrastructure buildout to support AI deployment exemplifies the timeliness of the opportunity. Data centers, power networks and fiber systems underpin AI adoption regardless of which companies ultimately lead in the AI race. That’s just one way infrastructure taps into today’s economic transformation.
As a result, our long-term capital market assumptions estimate attractive risk-adjusted returns relative to traditional equities and bonds. We see an opportunity for early adopters to secure exposure while demand for infrastructure capital still exceeds supply, helping keep potential returns and starting valuations attractive.
Monitoring scenarios is key
Illustrative distribution of U.S. equity returns