Investing in infrastructure is essential for the future as the world is faced with limited natural resources, a growing population, and a steadily rising movement of people, goods, and commodities. At the core is a need to invent new technologies to make our resources last. The initiative will be expensive, and long-term investments have incredible potential.
There was a time when sailboats were mainly made of heavy wood, iron, and steel that prevented speed and agility. Today, a boat’s infrastructure is a hull designed using lightweight high-tech, high-strength composites of carbon fiber, Kevlar, fiberglass, and fiber-reinforced plastic. A decision to invest in the core materials upfront increases the odds of a high-dollar return later.
Investments in infrastructure today will ensure that future generations use resources more efficiently for access to clean water, energy, goods, and a sustainable living environment. These are basic or foundational necessities. Not only does this sector of investment have the potential to yield great returns, but it should be considered an integral part of all high-end investment strategies.
The Economic Spotlight on Infrastructure Assets and Technologies
Currently, the issue of infrastructure is front and center in the global economy as well as in policy discussions, and the opportunities are better and more plentiful than ever. However, you’ll need to stay continuously up-to-date about the ongoing trends and emerging technologies in the field of infrastructure investments. By so doing, you can limit risk for investing in projects that may face significant challenges down the road and ensure that your organization is well-positioned to acquire profitable projects.
Infrastructure can refer to a variety of projects, ranging from roadways and transportation systems to utility networks and telecommunications. There are three primary categories:
Data infrastructure entails all the components that create a modern communication network, such as data centers, which store servers and define the backbone of the Internet. Additionally, telecommunications towers fall into the category as well, providing the network of transmission for broadcast and wireless industries.
Commodity infrastructure incorporates electric, and natural gas distribution, a subset of these are operations such as wind farms or hydroelectric dams. These utilities, many of them publicly traded, own and operate these grids, including the transmission infrastructure to get the power from plants into homes. Water and wastewater, including pipelines for sewage treatment and oil and gas infrastructure, generate 2.4 million miles of energy pipeline networks.
Transportation infrastructure involves ports, railways, toll roads, and airports. The federal government owns most, and some are publicly traded. We continue to see a trend toward privatization of some of these.
These examples require intense capital investments at the outset but later necessitate low operating costs and provide recurring revenue. Solidly built structures are long-lasting physical assets that hold an essential role in a country’s economic framework. These new infrastructure projects with their high-tech designs and materials are not dissimilar to the new technologies and designs which go into hi-tech offshore yachts. It’s no wonder so many large conglomerates donate in-kind and direct investments to major regattas such as the Americas Cup to gain the knowledge of break-through technologies to be capitalized on with their infrastructure projects and R&D.
Driving factors for Investing in Infrastructure
Several factors are driving the needs for fresh infrastructure investment. The historic underinvestment by governments into existing assets has resulted in the crumbling disrepair and obsolescence of crucial framework. Governments and companies now need to invest trillions of dollars in repairing and maintaining older technology and assets, not to mention supporting newly designed infrastructure for economic growth.
The global economy continues to grow along with the need for more infrastructure. As GDP increases, so does the movement of people, goods, and commodities and the demand for energy, telecommunications, and transportation, and more. Typically, governments have owned many of the critical infrastructure assets. However, because they are costly to maintain, they have been privatizing those assets by selling them to investors, making your foundation’s role vital.
Privatizing infrastructure is achieved by leasing or selling assets outright to private investors in order to bridge the gap between the massive expenditures required to maintain and expand infrastructure and the construction to meet a growing need. New opportunities such as those in renewable energy and digital infrastructure are growing. As a result of 2020’s global pandemic, there is an accelerated demand globally in the digital realm. Examples include data centers, telecommunication towers, and high-speed fiber networks. On top of this trend is a growing investor appetite for sustainability and clean energy opportunities as socially responsible investing becomes more prevalent and imperative.
A Sustainable Strategy
Clearbrook Global uses knowledge, expertise, skills, and means to manage resources effectively and allocate investments and believes infrastructure investment could provide a great opportunity. In recent history, infrastructure investments have outperformed the stock and bond markets. In fact, they’ve provided relatively high returns compared to their level of risk. This is an intriguing option for long-horizon investors, which offers stabilization to a portfolio and income generation that competes with bonds and rises above equities.
Some desirable traits of investing in infrastructure include a favorable risk-adjusted return profile, downside resilience, and stable yields. In comparison to other asset classes or sectors, infrastructure typically holds some unique advantages. An airport or toll road, for example, is more monopolistic with a steady demand for services. Infrastructure projects are tangible assets with values that are less likely to be impacted by market fluctuations. The possibility for long-term steady cash flow along with potential inflation protection offers an appealing combination of yield and a hedge against long-term liabilities.
Infrastructure investments continue to gain interest among investors, given its potential to generate attractive total returns. Because the projects are so long-lived, your organization can hold them over a long horizon to collect dividends without the typical risk profile of stocks and bonds. Investments in mature infrastructure have the potential to provide stable long-term returns, while growth and development infrastructure have significant capital appreciation potential. In a diversified portfolio, infrastructure investment can offer considerable benefits. The assets can generate returns that are high-yielding and income-oriented, as well as stable.
Investors need to keep in mind that these projects will always have inherit risks. However, by properly evaluating the risk exposure, you can minimize it. Your organization needs to make sure it is constantly updating itself on the current state of the economy and the projects that it targets. It is important to learn more about the different factors that can impact a particular project. By doing this, you will be able to make the right investment decision at any given point in time. Redesign your portfolio with an infrastructure investment strategy built to take advantage of the major changes predicted over the next few decades.