Unlisted Infrastructure – Highway to Diversification

Executive summary:

  • Private infrastructure offers unique investment characteristics and potential diversification benefits for portfolio construction.
  • Implementing an unlisted infrastructure portfolio comes with inherent challenges, but adopting a multi-manager strategy can help counter these vulnerabilities.
  • Having a holistic and robust framework to guide the building of an infrastructure portfolio, selecting managers, and evaluating investments is key to successful investing.

Infrastructure is the backbone of our society. It provides the essential services that we rely on every day, such as transportation, connectivity, energy, water, and sanitation. Infrastructure also plays a vital role in economic growth and development.

However, unlisted infrastructure remains underutilized as a diversifier. Traditional asset classes like equities and fixed income play crucial roles but are more susceptible to broader market volatilities and may be supplemented to meet the long-term return objectives of investors.

While infrastructure investment has emerged as an alternative, there's a notable dichotomy between listed and unlisted infrastructure assets. The former, while easily accessible, is publicly traded, hence is limited in its potential as a true diversification instrument. Unlisted infrastructure assets in contrast are valued on a quarterly basis, thereby offering more diversification benefit, but with challenges that may lead to suboptimal implementation. Understanding unlisted infrastructure's implementation challenges provides investors more tools to harness its potential in a portfolio.

What is unlisted infrastructure?

The global infrastructure landscape is multifaceted and expansive. Infrastructure as an asset class is diverse, ranging from transportation (e.g., toll roads, airports) and utilities (e.g., water, electricity) to social infrastructure (e.g., hospitals, schools). Among its various segments, unlisted and private markets boast a valuation exceeding $10 trillion.

This segment is poised for robust growth, propelled by factors including the imperative for heightened energy efficiency, surging data demands spurred by technological evolution, increasing strains on digital communications from shifting work and lifestyle dynamics, and evolving demographic patterns.

Yet, while unlisted infrastructure is a prominent component of the broader infrastructure ecosystem, investors need to recognize it as one of several distinct facets within the vast sector.

Please see Appendix for types of unlisted infrastructure.