Infrastructure companies provide the physical framework essential to the smooth running of a community. Utilities, transport, energy, schools, hospitals, as well as communications, water and waste treatment, all provide the framework conditions that are essential to the smooth running of our modern society.
Naturally, societal transformations go hand in hand with the upgrading of the infrastructure that underpins their development.
QUAERO CAPITAL has made significant investments in the infrastructure sector, both in listed infrastructure and in the financing of projects in private markets. This asset class offers a number of advantages in terms of both the nature of the investments and the specific characteristics of the sector. In any case, including a portion of infrastructure in a diversified portfolio seems very appropriate in the current environment.
Infrastructure is an attractive asset class overall for a number of reasons: diversification in portfolios, contractual and regular cash flows, resilience over the economic cycle (low beta), vital importance to society (digital and energy transition) and the benefits of longevity.
Protection against inflation
Investors also often see the infrastructure asset class as a good way of hedging against inflation. One of the main characteristics of this sector is that the companies in question often benefit from price indexation formulas built into their contracts. But the definition of infrastructure continues to evolve and its scope to expand. It is therefore essential to take a nuanced view of each asset to check whether it really has the usual characteristics of the infrastructure sector.
Current announced infrastructure spending plans make it the “number one” sector for global capital investment over the next ten years. Although, the infrastructure sector is intrinsically environmentally challenging in terms of greenhouse gas emissions, environmental pollution, habitat destruction and species extinction, we also believe there is an immense opportunity to promote responsible investment in this sector.
China’s ambitious ‘New Silk Road’ project aims to build road, rail and sea transport infrastructure, power grids, oil and gas pipelines in 78 countries in Asia, Africa and Europe. However, despite the enormous scale of the project, it is very difficult for foreign investors to participate. Fortunately, other public initiatives in the US, Canada, Europe, Australia, New Zealand and the UK offer alternatives for infrastructure investment.
Lithium is key to batteries. Batteries are key to electrification. Electrification is key to the energy transition. This is why lithium is at the heart of many debates. Of all the minerals that are essential to the transition, lithium is undoubtedly the one that has caused the most ink to flow. It fuels a certain number of fears, particularly of possible supply disruptions, but also a few fantasies. What is the real situation?
While Europe was largely dependent on Russia for its gas supplies, aided by a mild autumn, it has managed to reduce its consumption and find alternative sources of supply. The spectre of a gas shortage therefore seems to be dissipating. However, the measures taken are partly temporary and many investments in infrastructure will have to be made at full speed.