Infrastructure investment provides resilience in current economic environment, says new IFM Investors report
The resilience of infrastructure as an equity and debt investment amid increased global economic uncertainty is one of the key trends identified in a new report released today by pension-fund-owned, global-fund-manager IFM Investors.
The Infrastructure Outlook 2023: Uncertainty, transition and social factors also highlights the opportunities for investors due to renewed attention on energy security and the energy transition caused by the Russian invasion of Ukraine, as well as the increasing importance of social factors, such as inclusion and diversity and worker safety, in investment decision making.
The report focuses on major themes that IFM believes are shaping the infrastructure market:
Infrastructure resilience amid economic storms: While the infrastructure asset class is not immune to the challenges posed by a more difficult macroeconomic environment, including continued political and economic instability, IFM expects it to remain resilient across key sectors due to a positive correlation with inflation and steady demand profile. Patronage volumes across many infrastructure sectors are now meeting or exceeding pre-pandemic levels.
Asset allocation to infrastructure set to increase: While funding allocations by institutional investors to externally managed infrastructure have grown from US$300B to more than US$700B globally over the six years to 2021, solidifying its role as a foundation portfolio asset class, the current macro-economic conditions are expected to provide further tailwinds. The most significant opportunity exists for global pension funds and other institutional investors, which remain underweight relative to their targets.
Energy security and what it means for the energy transition: The Russian invasion of Ukraine has seen a renewed focus on energy security, particularly in Europe, with a trend towards friendshoring benefitting certain regions. This focus is likely to accelerate the energy transition over the longer term, creating continued investment opportunities.
Positive tailwinds for infrastructure debt: The resilience of this asset class to cyclical slowdowns is a key theme, along with two secular tailwinds continuing to drive transaction activity, including the strength of government infrastructure investment and the enormity of the investment required to fund the energy transition of the global economy.
The rise of the ‘S’ in ESG: The assessment and management of social issues – such as labour standards and conditions, and supply chain risks - by the investment community is also set to increase. Worker safety and inclusion and diversity are two of the key areas the report highlights that infrastructure investors are focused on and which could impact investment decisions.
This is the second Infrastructure Outlook released by IFM Investors, with the full report available here.
Quotes attributable to IFM Investors Global Head of Infrastructure Kyle Mangini:
“The global economic environment is a difficult one for investors, but we believe the infrastructure asset class has the characteristics to provide resilience in the face of rising inflation, higher interest rates, softening growth, and continuing geopolitical and economic uncertainty.”
“Infrastructure assets are showing significant resilience across different sectors, given their favourable links to inflation and steady underlying demand, which is generating a supportive environment for infrastructure equity and debt investment.”
“The infrastructure equity and debt sectors will also benefit from tailwinds from the energy transition as governments get on with the significant task of building out the infrastructure their communities need for 2030, 2050 and beyond.”
“We also believe social factors will attract increasing attention as investors become more attuned to the social issues and challenges that need to be addressed in order to meet our environmental goals.”
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About IFM Investors
IFM Investors was established more than 25 years ago with the aim to protect and grow the long-term retirement savings of working people. Owned by a group of Australian pension funds, the organisation has A$211 billion under management as at 31 December 2022. Because IFM is owned by industry pension funds, we prioritise the interests of 640 like-minded investors worldwide by focusing on assets that combine excellent long-term risk/reward characteristics with broad economic and social benefits to the community. As a signatory to The United Nations-supported Principles for Responsible Investment, IFM actively engages on ESG issues with the companies in which we invest with the aim of enhancing their net performance while minimising investment risk. Operating globally from offices in Melbourne, Sydney, London, Berlin, Zurich, Amsterdam, New York, Hong Kong, Seoul and Tokyo, IFM manages investments across infrastructure, debt, listed equities and private equity assets. For more information, visit ifminvestors.com.