Dr Tim Humphreys (Head of Global Listed Infrastructure, AMP Capital)
This month we debunk some of the common myths surrounding global listed infrastructure – an asset class which is becoming an increasingly important component of a well-diversified portfolio.
Myth 1: Infrastructure is a boring old ‘economy style’ investment
Nothing could be further from the truth. Consider some of the key global secular themes that are shaping the future of investment markets (such as water, communications, shale gas, electricity production). Infrastructure assets lie at the core of many of these. McKinsey estimates that US$57 trillion will be spent on infrastructure worldwide by 2030.
Myth 2: Infrastructure assets are very susceptible to interest rate hikes
In reality, infrastructure assets typically exhibit qualities that provide dual protection against rising interest rates. Firstly, infrastructure companies have longer-term debt structures. Secondly, contracts and regulation are often negotiated on a ‘cost-plus’ basis allowing charging structures to be increased in an environment of rising interest rates. In addition, if interest rates rise due to an increase in gross domestic product, then this provides natural economic support and an associated increased demand for infrastructure assets.
Myth 3: Listed infrastructure returns have run out of steam
Not necessarily. The asset class ‘overcorrected’ during the Global Financial Crisis, and we believe it’s only recently returned to its long-term growth trend. This means it still has plenty of upside potential given the fundamentals.