Infrastructure investments are real assets across a wide range of sectors that have a direct impact on the economic competitivity of a region or country. There are infrastructure needs in transport, energy, water distribution and treatment, telecommunications networks and social services. A good definition would be “any asset that is essential for the proper functioning of a country, region or province which affects basic services such as electricity, water, transport, communication or health.”
Although infrastructure assets are not something new, what’s new is that they are attracting more private capital. Why is this happening? McKinsey’s latest sector report from 2017 estimates the worldwide investment requirement in infrastructure for the 2018-2035 period to total USD 69,400 trillion and the public sector does not have sufficient capacity to assume that level of expenditure, bringing about a shortfall of USD 350 billion a year in investment to be absorbed by private capital. The contracts or regulations that govern infrastructure projects endow the sector with a unique economic profile: the stable and foreseeable cash flows as well as a safe degree of protection from inflation and interest rate hikes foments recurring cash generation.
All of these characteristics translate into a really attractive risk-return profile for infrastructure investments, as it provides low levels of volatility when compared to other assets, and thus a positive effect on investment portfolio diversification. The great advantage is that these returns (higher than fixed or variable income) are highly independent of macroeconomic cycles.
Infrastructure businesses make tangible contributions and the best projects provide, connect and produce sustainable results. In as much as governments recognize the power of infrastructure as a leverage to economic growth, they facilitate the flow of private capital which as we have seen is critical to cover infrastructure requirements.
Altamar integrates environmental, social and corporate governance (“ESG”) factors by implementing best market practices at all stages of the investment process. Thus, ESG factors are taken into account in the selection and analysis of investments (as part of the Due Diligence process), in the formalization of investments (by requesting ESG clauses from managers in the Side Letters and the Exclusion Policy) and in the monitoring of investments (by updating the ESG Due Diligence Checklist, analyzing the reporting on sustainability issued by managers and the ESG information collected by Altamar’s investment teams when attending their Annual Meetings).
With the passing of time, infrastructure has become an asset class of its own and its weighting in portfolios is on the increase. Infrastructure now represents 8.5% of the group of global private assets that are available for investment and is the fastest growing asset class with a very promising outlook.