“Almost £300bn is set to be invested by 2021, providing clear support for the sector to expand. Although a wide range of social and economic projects will be targeted, the initial phase will see the bulk of investment being focused on the energy and transport sectors.”
Typically, infrastructure projects have more recently been relying on private funding rather than public finances to get developments off the ground.
This was not always the case.
Mr Langley recalls: “While the public sector dominated the infrastructure landscape until the latter stages of the 20th century, with governments planning, building, and operating the vast majority of infrastructure assets around the world, this started to change in the 1980s.
“In this period we saw policy changes (led in part by the UK) transferring infrastructure assets to the private sector, and highlighting the growing importance of markets to provide financing. In the following 30 years we have seen billions of assets sold to the private sector, which has operated, maintained, and developed them.”
He continues: “When we then step forward to today, we find ourselves in a position where government debt has ballooned across the world, and many governments simply don’t have the budget or appetite to fund infrastructure projects.”
Higher or lower?
The opportunity here then is for increasing private sector involvement, not just in the UK and US but also further afield.
Mr Meany suggests: “A number of other drivers are likely to support further growth for the listed infrastructure asset class over coming years. Economic development and the integration of emerging markets into the global economy will require extensive infrastructure investment.
“China’s ‘One Belt, One Road’ development strategy has the potential to deliver significant infrastructure investments across Eurasia and Africa. We also expect renewable energy and battery storage investment will continue to grow over the next decade, albeit at a slower rate due to the law of large numbers and a gradual reduction in subsidy levels.”
But Gavin Haynes, managing director at Whitechurch Securities, believes investors should brace themselves for lower returns from the asset class.
“Going forward, we do not expect to see the levels of returns achieved over the past five years based on current valuations,” he warns.
“Higher bond yields could prove to be a headwind and we believe that it will be important for managers to be selective and move away from expensive bond proxy areas to seek value.
“In an uncertain political backdrop, the risk of regulatory interference could also weigh on utilities.”
However, he acknowledges this does not mean advisers’ clients should be selling out of the asset class.
