The impact of unlisted infrastructure assets on portfolios
It appears the global low interest rate environment is continuing to spur investor appetite for alternative asset classes – like unlisted infrastructure – that can offer potentially higher risk-adjusted returns. This comes at a time of increased uncertainty around the return outlook for ‘traditional’ asset classes, notably equity and fixed income. Indeed, we believe the diversification benefits of alternative asset classes are likely to be highly sought after as we enter the post-recession global economic environment.
Unlisted infrastructure is moving out of the ‘alternatives’ category and sitting beside other unlisted asset classes such as unlisted property. This is especially true for long-term patient capital where infrastructure portfolios can provide a strong foundation for relatively stable long term returns.
This article is an abridged version of our recent white paper, The impact of infrastructure on portfolio efficiency and diversification (Mar 2021)1 . It suggests that unlisted infrastructure does have the potential to contribute to improved risk/return outcomes from a portfolio perspective. This adds to the relatively small but growing body of literature supporting what is already relatively well known: unlisted infrastructure has the potential to provide solid returns in a low-yielding world that can facilitate effective portfolio diversification and contribute to improved risk adjusted returns.
We also demonstrate how excluding unlisted infrastructure from a portfolio, and an over-reliance on traditional asset classes of fixed income and equites, risks leading to a less efficient portfolio than may otherwise be the case.
1 The full version of the white paper is available on request.