In Brief
- Infrastructure can deliver stable, predictable income from essential services, with income in 2020 robust enough to help offset price declines.
- Long-term demand is expected to be substantial, driven by economic growth needs and the energy transition, with private capital supported by regulatory changes and subsidies.
- Many assets include inflation-linked revenue mechanisms (e.g., regulated utility “allowed returns”), making infrastructure an effective inflation hedge with limited cycle sensitivity.
Infrastructure provides stable income and diversification.
Infrastructure investments offer stable and predictable income streams, as they provide essential services that remain in constant demand regardless of economic conditions. As shown in the chart, even during 2020, the income generated was robust enough to offset price declines. Thus, global infrastructure offers both stable income and diversification throughout the economic cycle.
The future demand for infrastructure is expected to be tremendous.
Globally, several trillion dollars in infrastructure investment is needed annually to establish or upgrade the foundations of many economies. This is both to support economic growth and the ongoing energy transition. A global exposure is also important in order to capture the significant demand in both developed and developing markets.
Beyond maintaining current infrastructure, the transition towards net zero will create additional capital demand. While governments may face constraints and require more time to deploy capital, favorable regulatory changes and subsidies are likely to support private solutions moving forward.
Infrastructure investments can serve as effective inflation hedges.
Many infrastructure assets have long-term contracts with built-in inflation adjustments, ensuring revenues keep pace with rising costs. For example, the right chart shows how “allowed returns” for utilities, defined by regulators, tend to increase with inflation, enabling companies to pass higher costs to customers.
Given their essential nature, customers are less willing to go without during periods of economic stress. Even in recessions, household spending on utilities doesn’t change and why the asset is not sensitive to the economic cycle.