With equities weaker in 2022 and trading on fast-moving events, such as the Federal Reserve’s aggressive rate hikes and the war in Ukraine, infrastructure’s long-term proposition has been looking more attractive to investors today. This is because infrastructure returns are driven by investment plans in essential services, which span 10 or more years into the future, and these returns accelerate over time while providing considerable predictability compared to equities.
The relative predictability of infrastructure returns is delivered by regulated and contracted assets, which are our focus as we build infrastructure portfolios. With regulated assets such as water, electricity and gas transmission and distribution, a regulator determines the revenues a company should earn on its assets. Because demand for these assets is steady, and the regulator determines revenue, this mechanism leads to a relatively stable cash flow profile over time. Additionally, regulated assets are often monopolies, are typically defensive, and generate high amounts of income.
We also focus on on user-pay assets, which include airports, ports, rail, toll roads and communication infrastructure. These are long-term concession contracts leveraged to the growth in the underlying economy, which means they are tied to the volume of people and cargo flying, moving through ports and along railways, or using cellular towers.