#Podcast — 05.09.2022

Stay Defensive Boost Allocation to Infrastructure Assets

Prashant Bhayani, Investment Advisor, Hong Kong

In challenging markets for a 60/40 portfolio boost private assets allocation to include Infrastructure Assets

As investors look for diversify from the traditional 60/40 portfolio with rising stock markets and falling bond yields, examine infrastructure as an asset class.

·        In an inflationary world with stable, inflation-adjusted cash flows, in critical asset backed, defensive assets complimented with income distributions and potential equity upside.

·        With growing deficits world-wide the public sector will need to private infrastructure to build out critical areas including especially pertinent today energy independence. 

Until 2040 there will be a $12 trillion financing gap for infrastructure globally.

Private Infrastructure: private infrastructure offers a more defensive profile with potential private equity like value-creation upside complimenting a private assets allocation.

1.       RESILIENT UNDERLYING ASSETS: Invest in assets providing essential services with high barriers to entry. Energy & Utilities, Transport, Social Infrastructure, Telecoms, and Renewables

2.       INFLATION-LINKED REVENUES: Infrastructure investments are structured with revenues indexed to inflation (naturally or contractually)

3.       DIVERSIFICATION IN A PRIVATE INVESTMENT ALLOCATION: Infrastructure offers an exposure to different assets compared with traditional companies or real estate assets

4.       A GROWING ASSET CLASS: Private Infrastructure asset class is significantly growing, with USD101bn raised between Q1 and Q3 2021

5.       REGULAR INCOME DISTRIBUTIONS: Stable and predictable cash flows of underlying assets allow infrastructure to make regular distributions

6.       LOW VOLATILITY IN REVENUES: Infrastructure deals generate revenues through concessions and long-term contracts with counterparts (governments, blue-chip infrastructure service providers, etc.)

Hence, we would consider infrastructure assets as part of a private assets allocation.