After decades of neglect, the need to ramp up spending on infrastructure is coming to the forefront as aging power plants, highways and bridges have driven interest in new investment. Increasingly, institutional investors such as pension and sovereign wealth funds have been allocating assets to infrastructure. This has helped pave the way for retail or individual investors to invest in and reap the benefits of the asset class. Therefore, advisors should be able to discuss the area with their clients.
Infrastructure assets are mission-critical capital projects that move people, energy, goods and data, earning fees for their use through contracts and concessions. These projects include bridges and toll roads, airports, pipelines and utilities, as well as now, wireless towers, data centers and health care facilities.
Growing Global Need
During the past 30 years, the infrastructure asset class has evolved as many state-owned infrastructure projects have been privatized into investments for institutional and retail investors. This has been largely driven by an ideological shift toward shrinking the size of government and improving labor productivity. In addition, virtually every major city around the globe has been facing the financial challenges created by their constituents demanding maintenance of public services, but resisting increases in taxes to fund or improve them.
According to the McKinsey Global Institute, the world is in dire need of new infrastructure with an estimated cost of $57 trillion over the next 15 years. Given the effects of the global recession from 2009 to 2014, many economies have not responded to the challenge. During this time, spending on infrastructure decreased by approximately 25% in the United States.
The United Kingdom and the Eurozone were similar. Even some countries, such as India and South Africa, which have been increasing overall infrastructure spending, are seeing gaps between the actual and the required investment.
Unique Benefits And Risks