Investors sometimes find it difficult to decide where to invest their money right now. What are the arguments in favor of infrastructure investments?
There are a number of arguments in favor of this type of investment. Infrastructure investments are real assets with a long investment horizon and low sensitivity to economic fluctuations. In addition, infrastructure investments have a low correlation both with other asset classes and within their own asset class. Also, infrastructure investments tend to offer stable, risk-adjusted returns and a steady cash flow, since these investments are usually regulated markets or income secured by long-term contracts. Index-linked tariffs also offer investors protection against inflation.
How high do you estimate the current global scope for infrastructure investments?
The need for infrastructure investments, especially for sustainable infrastructure, is immense. According to a study by the Global Infrastructure Hub (GIH), a G20 initiative, an annual investment volume of USD 3.7 trillion will be required by 2040. Currently, the annual investment volume is only around USD 3.1 trillion, resulting in an investment gap of USD 0.6 trillion. This gap is particularly large in developing countries.
Can you explain something to us about the relationship between infrastructure and sustainability?
Infrastructure forms the backbone of economic and social development and is the basis for economic growth and increasing quality of life. Sustainable in this context means that infrastructure systems are planned, constructed, operated, and decommissioned in a way that accounts for both the economic expectations of the developers but also the social and environmental needs of the communities in which the projects are undertaken. Sustainable approaches not only avoid negative effects or exclude non-sustainable methods, but they also try to have a positive influence on society and the environment and to contribute to the achievement of important development and climate goals. This includes examining the social and economic benefits of investments, setting goals for them, and measuring results. Against the background of climate change and with a view to increasingly scarce resources, making infrastructure sustainable is a must in order to secure economic development and the long-term well-being of vulnerable communities.
Is Europe a popular location for these investments in international comparison?
A large part of the infrastructure investments is already going to developed countries and thus also largely to Europe. With a view to the coming years, the so-called European Green Deal will represent a strong motivator for and have an enormous pull on investments in Europe.
What risks need to be considered in infrastructure projects, despite the given opportunities?
As with any asset class, there are risks to be considered when investing in infrastructure. This includes business risks associated with the operation of infrastructure facilities, regulatory and political risks such as unstable institutions. Contrary to popular belief, these risks are not necessarily associated with a country’s status as a developing, emerging or industrialized country. If investors want to evaluate risks correctly, it helps to take a look at the historical and current situation of the investment location and to select an experienced investment manager.
How do you currently put your portfolio together?
We pursue a so-called “relative value” strategy. We look to invest globally, on a cross-sectional basis, in developing and emerging countries in four different sectors: renewable energies, energy infrastructure and efficiency, sustainable transport, and telecommunications infrastructure. Our relative value approach allows us to benchmark sector attractiveness globally in order to identify the best risk-return profiles for our clients.
This is a translated version of the original article written by Intelligent Investors. To see the original article in German please click on the following link: https://intelligent-investors.de/stabile-risikoadjustierte-renditen/