When people discuss alternative investments, they usually think of private equity, real estate, hedge funds and natural resources as the primary asset classes. But today we’ll look at an emerging alternative investment class—infrastructure.
The Financial Times defines infrastructure as “a basic physical structure needed for the effective operation of an economy. This can be for transport, such as roads or bridges, energy generation and delivery, water and waste management and communications to name a few.
“The funding of such projects provides investors with the asset and receipt of any income generated. The building and maintenance of a toll road is a classic example of an infrastructure investment. The investor can partial fund the project with, for example, a government and once finished will enjoy the asset and any income generated for a lease period. Infrastructure investments are similar to fixed interest securities in terms of return characteristics.”
Outlook for Infrastructure
Overall, the outlook for infrastructure investments seems positive. Research firm Preqin says that more than 41 percent of investors polled in a recent survey plan to increase their allocation to infrastructure co-investments in 2017. The report also states:
With 88% of investors intending to commit more capital or maintain the same level of commitments over 2017, infrastructure is clearly being recognized for its potential to generate stable returns over the longer term.
The proportion of surveyed investors that expect to commit the same amount of capital in the next 12 months compared to the previous year has almost doubled from 26% in December 2015 to 50% in December 2016 (Fig. 5.11). This proportional increase coincides with a decrease in the proportion of investors that expect to commit more capital as well as those that expect to commit less in the next 12 months.
The report goes on to state that renewable energy is most favored sector among investors (64%), followed by non-renewable energy (43%), transportation (34%), utilities (21%) and telecommunications (21%). In addition, North America is the most favored destination for infrastructure investments, with 60% of respondents saying it presents compelling opportunities.
And if President Trump’s infrastructure plan comes to fruition, it may further enhance the opportunities for investment in this alternative asset class over the coming years.
Do you have questions about infrastructure investing, or alternative investments in general? Click here to submit your questions today, and will give you informed answers. No strings attached.