The rise of in­fra­struc­ture as an as­set class

Finweek English Edition - - INSIGHT - BY PA­TRICK CAIRNS

Are­cent study by Price­wa­ter­house­Coop­ers (PwC) sug­gests that close to $78tr will be spent on in­fra­struc­ture across the world be­tween 2014 and 2025. It projects that $9tr will be spent on projects in 2025 alone, which is more than dou­ble the $4tr spent in 2012.

This growth is oc­cur­ring at the same time that long-term in­sti­tu­tional in­vestors are scratch­ing their heads over where to put all of their $85tr in as­sets un­der man­age­ment. In an un­cer­tain, low-yield en­vi­ron­ment they are look­ing for sta­ble al­ter­na­tives to listed eq­uity and bonds, but prop­erty and pri­vate eq­uity don’t have the ca­pac­ity to ab­sorb the huge amounts of cap­i­tal they want to al­lo­cate.

Is this a sup­ply an d de­man d mat ch made in heaven?

“Glob­ally, there is an in­crease in de­mand for long-term cap­i­tal, given the cur­rent fis­cal po­si­tions and in­fra­struc­ture needs in dif­fer­ent economies,” says Mark van Wyk, head of in­fra­struc­ture in­vest­ing at Mer­gence In­vest­ment Man­agers. “At the same time, there is a po­ten­tial in­crease in the sup­ply of that cap­i­tal.”

Al­ready in cer­tain parts of the world, most no­tably Canada, Australia and the UK, in­fra­struc­ture is be­com­ing re­garded as its own as­set class. In­sti­tu­tional in­vestors are in­clud­ing it in bal­anced port­fo­lios as it can pro­vide re­li­able long-term cash f lows, with some de­gree of in­fla­tion pro­tec­tion.

“There is an in­crease in de­mand from in­sti­tu­tional in­vestors look­ing for al­ter­na­tive op­por­tu­ni­ties with dif­fer­ent char­ac­ter­is­tics, es­pe­cially given the mar­ket we are in and where tra­di­tional as­set classes are trad­ing,” Van Wyk says. “As­set man­agers have to ask whether they stay in the same risky as­set al­lo­ca­tions, or if

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