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Infrastructure: A ballast in choppy waters

April 26, 2024

Throughout the recent volatile macro conditions, infrastructure has served as a stabilizing force in investors’ portfolios given its defensive and contracted profile.

Infrastructure can be described as the building blocks of society, which we classify into three main groups:

  1. economic (e.g., transport, energy, water, waste);
  2. social (e.g., health, education); and
  3. infrastructure 2.0 / “next generation” (e.g., energy transition, digital)

Over the past three decades, infrastructure has gained acceptance among institutional investors, evidenced by the $367 billion of committed capital yet to be deployed — this despite the challenging 2023 fundraising environment.[1] In addition, global institutional investors are around 1% under-invested to the asset class, with many expected to increase target portfolio allocations further, up from the 5% average.[2]

An inflation hedge

In recent years, infrastructure has been garnering even more attention among investors due to its ability to hedge inflation. Revenue models typically allow for periodic escalation explicitly or implicitly tied to inflation as well as cost pass-throughs to end users. For example, electric utilities often have three- to five-year rate agreements (i.e., what they can charge customers based on an allowable return on equity) as set by regulators combined with power generation revenues typically driven by market power prices. Aside from the inherent inflation linkages, other attractive attributes of the asset class include:

  • Long duration, cash generative nature
  • Assets providing essential services, creating inelastic demand profiles less linked to the business cycle (e.g., people need water and students attend school regardless of economic conditions)
  • Monopolistic supply characteristics and high barriers to entry (e.g., difficulty building competing railway lines or marine ports)
  • Unique return drivers determined by regulation, concession agreements, contracts or local economic activity

Private infrastructure has generated strong performance versus private real estate

These unique characteristics have enabled infrastructure to produce stable, noncorrelated performance versus traditional asset classes. According to the MSCI Global Quarterly Private Infrastructure Index, a benchmark that represents the global private infrastructure landscape, private infrastructure has returned 10.44% since inception of the index compared with the NCREIF ODCE with 5.40% and NCREIF Global Real Estate Fund Index with 2.89%.Figure 1 further illustrates performance of real estate versus broader asset markets.[3] In addition, given infrastructure assets’ long-term useful lives and debt tenors, valuation assumptions are less sensitive to short-term interest rate fluctuations versus other private markets assets. For instance, private core infrastructure discount rates held relatively steady throughout the past four years compared other segments such as private core real estate which are currently resetting higher from the early 2022 lows (i.e. putting downward pressure on underlying asset valuations).

Infrastructure Performance vs. Broader Markets June 2008 – Sept. 2023
Performance of Infrastructure Performance versus the Broader Markets
from June 2008 through September 2023. Returns include the MSCI Global Infrastructure, NCREIF ODCE, NCREIF Global Real Estate Fund, MSCI World, Bloomberg Global Aggregate Return Indices

Source: eVestment

Opportunities ahead

Looking ahead, our focus will remain on areas of the market benefiting from thematic demand drivers projected to remain in place over the foreseeable future. Examples include global connectivity (digital), environmental issues (energy transition) and demographics (economic, social, energy security). 

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  1. Preqin as of March 2024 Return to article
  2. Cornell University, Hodes & Weill, 2023 Infrastructure Allocations Monitor Return to article
  3. MSCI Global Quarterly Private Infrastructure Asset Index as of September 30, 2023. Inception of the index is June 2008. NCREIF ODCE is the NCREIF Open-End Diversified Core Equity Index and  represents US Private Real Estate, and NCREIF Global Real Estate Fund Index (GREFI) represents Global Private Real Estate. MSCI World Index represents Global Equities, and Bloomberg Global Aggregate Index represents Global Fixed Income. Return to article


This document was prepared for general information purposes only and does not take into consideration individual circumstances. The information contained herein should not be considered a substitute for specific professional advice. In particular, its contents are not intended by Towers Watson Investment Services, Inc., and its parent, affiliates, and their respective directors, officers and employees (WTW) to be construed as the provision of investment, legal, accounting, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. The information included in this presentation is not based on the particular investment situation or requirements of any specific trust, plan, fiduciary, plan participant or beneficiary, endowment, or any other fund; any examples or illustrations used in this presentation are hypothetical. As such, this document should not be relied upon for investment or other financial decisions and no such decisions should be taken on the basis of its contents without seeking specific advice. WTW does not intend for anything in this document to constitute “investment advice” within the meaning of 29 C.F.R. § 2510.3-21 to any employee benefit plan subject to the Employee Retirement Income Security Act and/or section 4975 of the Internal Revenue Code.

This document is based on information available to WTW at the date of issue, and takes no account of subsequent developments. In addition, past performance is not indicative of future results. In producing this document WTW has relied upon the accuracy and completeness of certain data and information obtained from third parties. This document may not be reproduced or distributed to any other party, whether in whole or in part, without WTW’s prior written permission, except as may be required by law.

Views expressed by other WTW consultants or affiliates may differ from the information presented herein. Actual recommendations, investments or investment decisions made by WTW, whether for its own account or on behalf of others, may differ from those expressed herein.

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