Infrastructure

Infrastructure is the number one issue facing the world today and the need for infrastructure investment, especially in emerging markets, has never been more urgent. The physical assets, operational systems, and associated services necessary for any economy affects every aspect of our lives.

Over the last 45 years, infrastructure investment has declined to less than 3% of GDP of most developed countries. The USA alone must invest over $3 trillion on infrastructure in the next 10 years. In emerging markets, the increasing demand will provide investors with major opportunities in construction and civil engineering. The McKinsey Global Institute has estimated that $57 trillion in investment is required to service the global GDP growth over the next 15 years. This is a 60% increase from the $36 trillion invested since the year 2000.

Infrastructure assets include ports, airports, transport, electricity, waste treatment, telecommunications and many others. Highways and toll roads will attract major investment, providing long-term dividends to investors.

In Europe, the austerity measures continue to limit investment by the public sector. The UK government is attempting to attract private sector capital for public projects. In the emerging markets, new projects are supporting growth, which is driving demand for investment in infrastructure, while leading to increased road and airport traffic.  In Latin America, the need to reach export markets for natural resources and agriculture production is again driving demand for investment on road, rail, and seaports.

The benefits of infrastructure investment to investors are many, the balance of return over risk is very attractive when compared to bonds and equities. Inflation- proof dividends is another benefit. The inflation-linked nature of the infrastructure industry is an additional benefit. Many infrastructure companies see revenues rise during periods of inflation and rising interest rates, due to contractual relationships that contain escalators tied to inflation.

Operators of those assets that have substantial exposure to GDP growth, such as ports or airports, will also see revenues increase with inflation.

Operators of those assets that have substantial exposure to GDP growth, such as ports or airports, will also see revenues increase with inflation.