Unlisted infrastructure has exploded in popularity and is one of the most important categories of alternative investment funds. Current global events are making it even more relevant. The war in Ukraine is having a significant impact, particularly in energy infrastructure.
The portfolio manager responsible for infrastructure investments at Evli, Richard Wanamo, believes that the coming years will be a good time to invest in attractive infrastructure companies. The investment needs in infrastructure over the coming decades will be huge - estimated at around $3.7 trillion per year globally. To make these investments happen, a large amount of private capital will be needed alongside public funding.
Infrastructure is a vital real asset for society
"There are many arguments in favour of investing in infrastructure. Not least because infrastructure is a critical asset for the functioning of society. It consists of a diverse range of assets, from bridges and power stations to hospitals, wind farms and fibre-optic networks. As a defensive asset class, infrastructure has performed well through economic cycles and been uncorrelated with other asset classes, making it an effective diversifier for an investment portfolio," says Richard Wanamo.
Over the past decade, unlisted infrastructure has emerged as one of the most important alternative asset classes alongside private equity, private debt, and real estate. The global assets under management of unlisted infrastructure funds have already more than quadrupled compared to 2011, to around $1 trillion. This growth is driven by increased allocations from both institutional investors and private wealth managers.
"Of course, it's good to remember that investing in infrastructure is a long-term investment that carries its own risks. As an asset class, its most relevant risks are related to the success of the operations and the general economic development," Wanamo points out.
Investments in renewable energy and energy self-sufficiency are accelerating
Interest in infrastructure investments is being boosted by US President Joe Biden's infrastructure package, which includes significant incentives to support renewable energy and carbon capture, for example. Russia's invasion of Ukraine, in turn, will permanently change the energy infrastructure as the EU and its member states seek energy self-sufficiency. At the same time, this will accelerate the shift towards renewable energy.
"In addition to the current global conditions, other megatrends, such as population growth and urbanisation, are leading to large investment needs in all sectors of infrastructure. The attractiveness of each sector and geography can vary widely. Renewable energy projects are generally attractive, but in China, for example, the political risk around all sectors has clearly increased," Wanamo adds.
The advantage of these investments is a stable and predictable return through the cycles
The regulated nature of infrastructure assets, their protected competitive position in their own operating environment and the strong cash conversion associated with them ensure that returns are stable and predictable.
"A good example of this is a highway, which is implemented as a so-called Public Private Partnership project. A private financier signs a decades-long contract with a public counterpart, who pays regularly for the use of the asset, regardless of actual utilization. The payment is linked to a price index and there is no risk of another highway being built next to it. Whatever the economic situation, the road will be needed and used," says Wanamo.
NB! Evli's alternative investment funds are intended for professional investors and a limited number of non-professional clients who make an investment of at least EUR 100,000 and who are considered to have an adequate understanding of the fund and its investment activities.