Global listed infrastructure – structural changes in asset class create opportunities

Infrastructure is the bedrock of economic growth, productivity and social development.

Within developed market economies, the focus is not only on driving economic development, but also on replacing ageing infrastructure, while for emerging market economies, the focus extends to social reasons, such as improving access to healthcare or water supplies. Other key drivers of growth include the energy transition, re-shoring of manufacturing and increasing data infrastructure to accommodate growth in the digital economy and artificial intelligence. All these trends create a need for global infrastructure investment of $97trn by 2040.

Due to the importance of infrastructure, investment has traditionally been funded by governments; however it is increasingly becoming a key asset class for long-term, private investors as well. Currently, infrastructure investment stands at ~$3trn, or 3% of global GDP, however private capital is now responsible for ~10%.

From an investor perspective, infrastructure is often seen by market participants as a portfolio diversification tool, and as a hedge to long-term liabilities (asset-liability management) by offering exposure to potentially stable, inflation-linked returns.

The activities which can be deemed as infrastructure are broad and there is no single definition. However, the “core” infrastructure market is normally defined as owning, operating, managing and/or maintaining physical structures or networks used to process or move goods, services, information, people, energy and/or life essentials. It typically covers Transportation, Energy and Telecommunications. Infrastructure “related” activities are defined as those that involve the utilisation of infrastructure facilities without owning, operating, managing or maintaining them.

Despite being a smaller part of the global core infrastructure market, the emerging markets are particularly interesting given the large infrastructure gap and prevailing demographic and economic trends in the region being potential tailwinds in the years to come.

Emerging market GDP growth has outpaced developed markets, helped by structural reforms in countries like India, Brazil and Mexico, and supply chain shifts. Their excess growth relative to developed markets is forecast to widen further.

However, economic growth is held back by an infrastructure deficit across the region. There is an estimated $15 trillion deficit between infrastructure investment needs globally and current trends to 2040, roughly two thirds of which come from emerging markets.