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Infrastructure

Building for growth: Unlocking the power of infrastructure assets

The modernization of our infrastructure is essential to fostering a growing and equitable economy. Institutions are tuning into what we believe is a generational opportunity, not only for the potential portfolio benefits listed below, but as a powerful way to invest in the trends that will shape the future of our economy.
INVESTMENT ACTIONS

Portfolio positioning

Unlocking the power of infrastructure assets

In a market regime of higher macro and market volatility, infrastructure assets are poised to offer stable returns, inflation protection, diversification benefits and an opportunity to drive the energy transition forward.

icn performance
Resilient returns over time
Potential to deliver stable income and a return premium over fixed income and equities across different market cycles for the long-term
Inflation protection
Inflation protection
Explicit and implicit linkages to inflation strengthen portfolio performance during high inflation environments
Diversification benefits
Diversification benefits
Offers diversification in periods of market volatility due to its idiosyncratic risk characteristics and low correlation to other asset classes
Transition outcomes
The energy transition
The transition to a low-carbon economy is driving a surge in infrastructure investment.

Infrastructure as a potential inflation hedge

Living with inflation

Infrastructure and inflation

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results.

Source: Bloomberg, Barclays. EDHEC for Infrastructure equity; NCREIF for Global Real Estate; MSCI for Global Equities; and BBG Barclays Global Aggregate Index TR for Global fixed income, as of May 22, 2023 (annual data since 2001). The charts are based on an illustrative US economic scenario. Past performance is not indicative of future results. You cannot invest directly in an unmanaged index. High growth periods are when U.S. GDP > 2.5% and Low growth periods are when U.S. GDP < 2.5%. High inflation periods are when U.S. CPI > 2.5%.

Staying ahead of inflation with infrastructure assets

Infrastructure is a unique asset class with characteristics that can provide resilience in the current rising rate and high inflationary macroeconomic environment.

Historical infrastructure outperforms during high inflationary times

The returns of private infrastructure companies tracked in the EDHEC 300 index increased by 23% through low growth and high inflation scenarios.

Explicit linkages to inflation

Infrastructure assets have long-term revenues that are often contracted or regulated in nature, with examples including power purchase agreements (“PPAs”) or take-or-pay contracts.

Building more resilient portfolios

A dedicated infrastructure position, held as part of a broadly diversified long-term portfolio, has the potential to increase both the efficiency and durability of the portfolio’s returns. 

Risk/return relationship

Source: BlackRock, May 22, 2023, based on BlackRock's Capital Market Assumptions. Expected Returns are net of fees and expenses and calculated using a model fee equal to 0.30%, which represents the highest advisory fees charged for an institutional client. Expected returns also reflect reinvestment of dividends, capital gains, and interest but do not reflect the deduction of taxes. Had that expense been deducted, performance would have been lower. There is no guarantee that the capital market assumptions will be achieved, and actual risk and returns could be significantly higher or lower than shown. Hypothetical portfolios and risks shown are for illustrative discussion purposes only and no representation is being made that any account, product or strategy will or is likely to achieve results similar to those shown. Expected risk is calculated using the expected volatility assumptions. Expected risk is defined as annual expected volatility and is calculated using data derived from portfolio asset class mappings, using the Aladdin portfolio risk model. This proprietary multi-factor model can be applied across multiple asset classes to analyze the impact of different characteristics of securities on their behaviors in the marketplace. In analyzing risk factors, the Aladdin portfolio risk model attempts to capture and monitor these attributes that can influence the risk/return behavior of a particular security/asset. See "Capital Market and Modeling Assumptions". Past performance is not a guarantee or reliable indicator of future results.

Equity and fixed income relationship

The Great Moderation saw long-term bonds work as a cushion against risk asset selloffs. We think this era is over and strategic infrastructure allocations can help make portfolios more resilient.

Low correlation to other asset classes

Infrastructure equity exhibits low correlation to traditional asset classes due to its idiosyncratic characteristics.

Diversification benefits.

Our research finds that adding infrastructure to a traditional 60/40 portfolio, could increase returns while diversifying risk. The optimal portfolio allocation has a 35% exposure to infrastructure.

The New Infrastructure Blueprint

We explore the major structural forces driving what’s poised to be a transformational moment in infrastructure investing. And we dive into the various ways capital can invest in the opportunities that we’re seeing today as well as the ones we’re expecting, and how investors can incorporate the asset class into their portfolios.
The New Infrastructure Blueprint

What trends are infrastructure investors observing?

As we look at the infrastructure market today, we see three key big macro trends that are driving investment decisions and allocations. The first is decarbonization. Obviously, companies and governments wishing to get to a net zero future. Second is digitalization. Investment in digital infrastructure the digital infrastructure that we use every day. And that's growing quite dramatically as we speak.

And then also what we call decentralization, which is really the outsourcing of infrastructure that's owned, needed or developed by corporates around the world. There are hundreds of billions of dollars being allocated into these trends today. And at the same time, with the volatility in the public markets, a lot of corporates that own this infrastructure or need it, they're outsourcing that to private market investors.

So there's a huge, huge macro set of trends pushing more demand for infrastructure investment. And that volatility is actually driving more towards the private markets to satisfy those needs.

How do you evaluate new technology and developments in energy infrastructure?

There are two really pervasive trends in today's market that are driving huge amounts of activity. One of the huge trends in today's market is in and around digital infrastructure, and the need for more and more data centers as we transitioned into a world in which artificial intelligence, or AI, is pervasive. In fact, there are predictions that we need about double the number of data centers by 2030. That is massive. Hundreds and hundreds of billions of dollars of investment capital needed to enable that. And it's not just to build the data centers themselves. It's also the amount of power that is needed. The other big trend is around energy transition and what we're really focused on is what is beyond wind and solar.

It's renewable fuels. It's long-term storage of energy. It's more recyclables in the circular economy. It's carbon capture and storage.

How does infrastructure fit in a portfolio?

There's a number of things about infrastructure that's diversifying, that's not linked to other asset classes. First of all, key to the asset class is stable income and providing dividend streams over a long period of time. But also that is coupled with capital appreciation. The interesting thing about infrastructure in an overall portfolio is it is quite diversifying. We saw this over the last two and a half years when interest rates started going up. Equity values actually went down for quite a period. And in that marketplace there was stability in the valuations of infrastructure assets over time, because most of these assets have long term contracted revenue streams that provide certainty in terms of dividends and overall returns over time.

Important information

This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are subject to change. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

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The opportunity set for infrastructure investors

Mark Florian, Head of BlackRock Global Infrastructure Funds, explores the trends shaping the infrastructure investment landscape. He highlights key considerations for clients, the evolution of the asset class and the role of an infrastructure allocation within a portfolio.

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Infrastructure investments offer institutions the opportunity to invest in the transformative building blocks of our economy and support the transition to a more technology-driven world. We believe that BlackRock’s global reach, deep experience and sourcing prowess make the foundations of an infrastructure investment platform investors can build on with confidence

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