Infrastructure Investment: Why is Infrastructure an industry to invest into?

Where would we be without Infrastructure?

It is one of the most important parts of day-to-day life and we, as a society, heavily depend on it. Whether it is roads, railways, airports, water treatment plants or many other assets. The economy also benefits directly through job creation during construction.

What is Infrastructure?

Infrastructure is the primary thing that society needs to function. It includes transportation, energy, communication, water and waste networks – across every city in every country in every continent. We can look at Infrastructure as 2 main subgroups.

Economic Infrastructure which is infrastructure that promotes economic activity include transportation with Roads, Highways, Railroads, Airports and Ports as well as Energy/Power with Renewable Energy, Electricity, Power generation and similar.

The second type is Social Infrastructure which includes assets that accommodate social services termed as 'social overheads' this will be focused on assets such as transportation (as it benefits both the Economy and Society) as well as hospitals, schools, housing and similar.

Rise of Renewable Energy

Over the past decade one area in particular has noticed significant growth in the Infrastructure space - Renewable Energy. This has primarily been with Wind Turbines and Solar panels, as well as new technologies such as Hydropower which is on the rise. 

As we can see from the table above Renewable Energy has generally been on the increase with it settling around the $80 billion mark per quarter ($320 billion per year).

In terms of capacity, 184 gigawatts (GW) of new Renewable Energy was added in 2019, up 12% from 2018. This will hopefully continue to increase at a similar rate as we move towards a more sustainable future.

Why Invest into Infrastructure

One key area that makes Infrastructure different to many other industries, is its ability to ride out economic declines. It in turn offers investors a stable and resilient return on their investment.

This can be seen across the past 12 months, where many Infrastructure/Renewable Energy funds have been relatively successful given the global pandemic.

According to Preqin, a financial data company who analyse Infrastructure investment, Infrastructure has averaged an 8.9 per cent return over the past ten years. This is compared to global equities, which had a 7 per cent ROI and bonds which had 3.4 per cent.

This can also be seen on the chart below demonstrating how the infrastructure sector has outperformed the global stock market over the past 10 years.

 

The future of Infrastructure

Unfortunately, we are now facing a massive $15 trillion infrastructure investment gap and according to the Chief Executive of the Global Infrastructure Investor Association (GIIA): “A huge amount of money is required around the world for infrastructure investment. It is one of those areas where governments cannot do it by themselves, so they absolutely need the assistance of private capital”.

This can be seen on the chart below:

This shows that although we do invest a massive amount of money into Infrastructure assets, we need to increase this figure.

One key reason for this, is the growing global population which puts a lot of pressure on our roads and transportation resources, as well as our hospital and schools.

Conclusion

Ultimately, it is clear why we need Infrastructure, as where would we be without out?

However, the investment figures need to increase, and hopefully they will. It not only benefits us individually every day through our jobs and personal lives, but also rewards our countries economy and the companies that investment gets a fantastic return on their investment. It’s a win, win.

Everyone can invest in Infrastructure as well, unfortunately not directly (unless you have a few million to spare) but through infrastructure investment trusts, as well as some infrastructure companies also being listed on different stock markets.

If you are part of an Infrastructure investment team or looking to join one, it would be great to discuss the market with you, and perhaps I can help you find your next role or future role, depending on your situation.

For more information, please contact me on Matt Kingston, mkingston@leap29.com, +44 (0) 1625 537 555 ext 128

Sources
https://www.weforum.org/agenda/2020/06/global-clean-energy-investment-research/
https://www.raconteur.net/infrastructure/infrastructure-investment-bonds/
https://www.hl.co.uk/news/articles/investing-in-infrastructure-building-in-popularity#:~:text=Investing%20in%20this%20sector%20could,prices%20without%20affecting%20demand%20much.&text=Due%20to%20the%20cost%20and,there%20to%20be%20government%20involvement

Posted by Matt Kingston