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Executive Summary
The infrastructure asset class is comprised of the basic physical systems of a nation required to support economic and social activity; traditionally the responsibility of government spending. Infrastructure assets are generally physical, durable and substantial real assets that operate over extended periods of time, and have investment characteristics such as high barriers to entry, being defensive in nature, strong margins and stable cash flow, amongst others. Over the past few decades, infrastructure as an asset class has continuously evolved. What began in the 1980s with the United Kingdom and Australian governments’ infrastructure privatization programs has now fully developed into its own distinct asset class.
As an asset class, infrastructure has exhibited less volatility than equities and higher total return potential than bonds while also protecting against inflation. Additionally, it has shown to have a low correlation with traditional asset classes and economic cycles.
Deficient infrastructure spending is a serious issue for both developed and developing economies, as it negatively impacts economic growth, productivity, social development and the standard of life. Given the current global infrastructure investment gap, the need for increased infrastructure spending in the foreseeable future creates a large and growing opportunity for investors. The infrastructure space is one of the most active sectors in the Organisation for Economic Co-operation and Development (OECD) market, yet it is also one of the most underinvested economic areas, providing great potential for investors.
Fiera Infrastructure focuses on mid-market, which encompasses transactions that require equity investments below $200 million. The higher deal supply, combined with the relatively lower competition for deals, has contributed to the higher historical returns in mid-market versus large-cap infrastructure. We believe the persistence of these supply and demand dynamics results in better value and expected returns for infrastructure assets in the mid-market and allows for the formation of more diversified portfolios.
Fiera Infrastructure believes that infrastructure should be viewed as a global asset class and that in addition to careful asset selection, portfolio construction and diversification further mitigates risk. At the same time, active management of each infrastructure project plays an integral role in maximizing asset value and optimizing long-term returns.
Investment managers are under increasing pressure to source and select compelling infrastructure investments as interest from retail and institutional investors in the infrastructure asset class continues to increase. As explained in greater detail throughout the report, Fiera Infrastructure has identified a number of criteria we believe are required for success in the space.
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