Building up: How we see infrastructure investment expanding
For decades, the term “infrastructure” has called to mind toll roads, electricity grids, airports, power and transportation networks – the backbone of an industrial economy.
Today, the term also includes new kinds of digital infrastructure, such as data centers needed for artificial intelligence and assets linked to the energy transition.
These long-lived assets tend to offer stable cash flows, making infrastructure attractive as a long-term position that can provide potential diversification and consistent income.
1) What will drive the value of infrastructure in the future?
We believe demand for infrastructure is at the beginning of a period of rapid growth. Data centers are at the heart of this expansion, as they are necessary for AI – requiring more power from cleaner sources. This is having a global impact. While the United States is the largest market for data centers, the data center market is growing around the world. This global trend is reshaping the infrastructure landscape, creating opportunities for investment and innovation.
2) What’s held back the total return for infrastructure?
Infrastructure has high income, high debt and a long lifespan. The reliance on debt becomes a bigger issue when the cost of financing rises. Today, the pricing of this asset class reflects the increased cost of borrowing. However, we believe it overlooks the future values of infrastructure investments based on their expected profits and incomes, and our expectations for further declines in interest rates.
3) What does it mean for investors?
We feel infrastructure is uniquely underpriced at present. As noted, we believe the market is underappreciating the strength and durability of the profits that infrastructure assets can generate. We continue to believe AI is a powerful tailwind for these assets and believe the new administration is committed to accelerating this build out.
In light of recent market…
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