What's Driving The Demand For Listed Infrastructure?

Outperformance of S&P Global Infrastructure® Index vs. MSCI World Index during quarters of negative equity market performance

Infrastructure index vs SP 500 index

4. Uncertainty reigns

The Economic Policy Uncertainty Index, which measures policy-related uncertainty around the world, is close to an all-time record, having recently notched its second-highest reading ever this past June.10 Uncertainty created by the ongoing China-U.S. trade war, as well as deteriorating economic conditions and a host of unpredictable geopolitical events, is negatively impacting both consumer and business sentiment. Given that infrastructure assets provide essential services, are defensive in nature and have resilient cash flows, it stands to reason that they’re poised to do better than more cyclical investments in these uncertain times. Indeed, the listed infrastructure asset class is forecast to log an earnings growth rate of 6% in the first year and 7% in the second year. In addition, it’s expected that dividends will grow faster than earnings, with dividend-per-share growth forecast at 8% per year over the next two years.11

5. Access

A key feature of listed infrastructure is its ease of implementation. When compared to investing in infrastructure via private markets, potential benefits to investors include:

  • Appropriate levels of geographic, sector and asset level diversification.
  • Liquidity. This enables the active management of an infrastructure portfolio to:
    1. Potentially generate excess returns through stock and sector selection.
    2. Provide ongoing risk management.
  • Lower fees.

Furthermore, many of the world’s leading infrastructure companies and assets are accessible only through public markets. For example, consider the chart below12:

Infrastructure companies chart

6. Private-market demand for listed infrastructure

Private-market demand for listed infrastructure assets is strong, given the valuation arbitrage in favor of public markets and the dry powder available across private infrastructure funds. It’s worth noting that dry powder held across private infrastructure funds has now grown to $200 billion. Leveraged, that provides approximately $500 billion of buying power. Some of that capital has and will continue to, work its way into public markets.13 For instance, in the second quarter of 2019, several public companies (Genesee & Wyoming, Buckeye Partners, and El Paso Electric) were the subject of takeover bids by private infrastructure investors at between 17% to 40% premium, relative to their share price.14

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