Long-term attractive returns with infrastructure investments

Keeping infrastructure running is a challenge, and various factors affect these lifelines of society. Much of the world’s infrastructure, especially in the developed world, is outdated and needs to be upgraded. This includes roads, bridges, and water and sewage systems. Significant investment is needed to avoid failures and to ensure economic growth and public safety. The increasing frequency and intensity of natural disasters also emphasises the importance of making infrastructure more resilient. The increasing interconnection and digitalisation of infrastructure systems are creating new security risks, ranging from physical threats to cyber attacks, which also require investment.

Overarching mega-trends such as decarbonisation, renewable energy sources, energy storage, new mobility, urbanisation and demographic change are creating additional need for infrastructure investments. To enable the energy transition and achieve the net-zero targets, a great deal of capital is required for the expansion of electricity generation and the transmission of electricity, among other things. The Organisation for Economic Co-operation and Development (OECD) estimates global infrastructure spending at around 1.8 trillion dollars per year between 2020 and 2030. It also forecasts an investment gap of 15 trillion dollars in infrastructure by 2040 (comparing requirements with current investment trends).¹

While the provision and maintenance of infrastructure is usually perceived as the responsibility of the state, it often involves private capital. As an asset class, infrastructure is therefore a special kind of investment. Unlike securities, this is a market that is not directly accessible to all investors, but still offers a wide range of investment opportunities. In addition to the usually high initial investments and long maturities, the characteristics of infrastructure investments include limited competition, high barriers to entry, large economies of scale and a degree of illiquidity. As an asset class, infrastructure is particularly attractive to investors with a long investment horizon, as the defensive nature of infrastructure investments enables them to bring stability to a portfolio. A calculated risk can thus generate long-term, attractive returns. Providers usually focus on high dividend yields.

Through its funds, Swiss Life Asset Managers facilitates long-term direct investments in infrastructure companies in the mid-market segment. A diversified portfolio encompasses sectors such as transport, energy, digital infrastructure, renewable energy sources and social infrastructure. ESG criteria are consistently integrated into the investment philosophy. The geographical focus is on the OECD countries. Core/Core+ infrastructure forms the backbone of our society. In an ever-changing world it enables flexible investment in the mid-market, across different sectors and regions, in order to deploy capital efficiently and achieve the expected returns. Companies are selected according to the criteria of long-term profitability with limited volatility and calculable growth potential. The less crowded mid-market segment offers impressive opportunities in which Swiss Life Asset Managers’ experience and focus on creating long-term value can be leveraged.