Building Tomorrow: Infrastructure Investment for a Changing World

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Building Tomorrow: Infrastructure Investment for a Changing World
M&A and Transaction Solutions

Building Tomorrow: Infrastructure Investment for a Changing World

The infrastructure sector offers investors a range of risk-reward profiles across the core, core-plus and value-add strategies and whilst the target return composition (income versus capital growth) varies across these strategies, the asset class at large has remained compelling for investors through the economic cycle. Investment opportunities driven by the global megatrends, the downside protection stemming from the provision of essential socio-economic services through to highly predictable inflation linked yield from core assets are all features which appeal.

However, the asset class is not without risks. This report examines the current state of the sector, shaped by challenges such as fractious geopolitical conditions, regulatory changes, and rising climate risks. There are of course notable opportunities as well, stemming from the powerful tailwinds of digitalization and decarbonization.

Our research delves into core themes including perceived hurdles to capital deployment, the implications of the current wave of fund manager consolidation, and the impact of changing regulatory frameworks, such as the landmark US Inflation Reduction Act, in shaping investment strategies. Climate resilience and cyber security, which are becoming increasingly material for fortifying infrastructure assets and protecting returns, are also explored.

The aim of this report is to provide stakeholders, including general partners and their investors, with comprehensive insights on prevailing risk perspectives and the mitigation strategies that will help them to adapt and achieve successful outcomes.

Key Findings

  • Increased Deal Flow

    ‘Core’ renewables (onshore/offshore wind, solar PV) and digital infrastructure (data centers, fiber networks, mobile towers) are the infrastructure subsectors which are expected to record the highest near-term deal flow, with each accruing 40% of first-choice votes among our respondent group.

  • Greatest Risk

    The biggest perceived risk to deploying capital into infrastructure assets over the next 18 months is geopolitical risk. The escalation of existing military conflicts, the impact of global technology decoupling, climate policy gridlock and major cyber attacks can impact projects and their associated supply chains. Over half of respondents (52%) identify this among their top-three choices, including 24% who say it will be the single biggest challenge.

  • Inflation Reduction Act (US)

    The US Inflation Reduction Act is fueling increased greenfield investment in the US. The ability to transfer tax credits has been a major enabler of renewable energy investment with 68% of respondents saying transferability has made it easier to monetize tax credits, including 16% who say that monetization of tax credits has become significantly easier.

  • Opportunities among Physical Climate Risk

    The increasing materiality of physical climate risk on infrastructure investments is becoming a critical consideration for fund managers, with more than three-quarters of respondents agreeing (76%, including 28% who strongly agree) that “the potential for greater exposure to physical climate risk influences the decision to invest in a particular location”.

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