Infrastructure investment involves investing in physical structures and essential services such as roads, bridges or airports. These are long-term investments, with stable and predictable cash flows, in a highly regulated sector with significant entry barriers. These characteristics provide certain guarantees of success and reinforce their attractiveness.
Acciona, Ferrovial, ACS or Sacyr are some examples of infrastructure companies. Among other activities, they are engaged in the construction of highways, airports, railways, water management or infrastructure building for the energy sector.
In this post we explain what investing in infrastructure involves, its advantages and the value they bring to the real economy and your portfolio.
It is a key investment for development, since committing to strengthening and promoting infrastructure generates employment, competitiveness and improves productivity, increasing well-being and reducing social inequalities.
In fact, according to an analysis published by Nature Sustainability, most of the UN's Sustainable Development Goals (SDGs) will depend on the infrastructure systems. Specifically, they are required to achieve 72% of the goals.
In addition, it is an investment that thrives on several megatrends, such as demographics and sustainability. The growth of population and the tendency to build megacities (cities with over 10 million inhabitants) favour the demand for new infrastructures and the adaptation of existing ones, as so does an ageing population.
On the other hand, infrastructures play a key role in combatting climate change. According to a report by The New Climate Economy, we need to invest $90 billion in sustainable infrastructure between 2016 and 2030. The construction of wind farms, the expansion of cleaner transport networks or building homes that meet sustainable criteria, are some examples.
Investment in infrastructure offers high and consistent returns. The high barriers to entry, regulation, project robustness and the diversification and decorrelation offered, make it an essential investment in portfolios.
This type of investment in private capital covers numerous sectors, such as telecommunications, transport, public services or the energy sector, so it offers good sectoral diversification.
It also allows you to invest anywhere in the world, which also provides good geographical diversification. For example, in the construction of a bridge in Japan to improve communication between two islands or a highway in Houston in the United States or in the refurbishment of Barcelona airport.
This type of investment provides a hedge against inflation, as it encompasses sectors with a high capacity to set prices. It also reduces volatility in portfolios, as contracts for their development are signed with major agents, thus increasing their stability. In addition, infrastructures have little sensitivity to the economic cycle, which is why they provide a suitable decorrelation.
When investing in infrastructure, you also invest in the real economy. These projects aim to improve people's quality of life, for example by investing in water management or promoting communication between cities. As a result, the investment will have multiple direct and indirect positive effects on society.
One of the most measurable impacts is job creation. According to UN data, investment in infrastructure has a multiplying effect: each job in the industry creates 2.2 jobs in other sectors. By improving communications, they also drive trade and tourism and resolve numerous social challenges due to contributing to the construction of hospitals and schools.
Although it is one of the investments with the best risk-return ratio, investing in infrastructure, like any other type of investment, involves taking risks. Particularly noteworthy is the regulatory and political risk, that is, the possibility urban planning laws changing and delaying or cancelling projects or a state's policies for investing in infrastructure changing due to the economic situation.
At Crescenta you can invest in infrastructure, achieving a high degree of diversification. In addition, you will receive professional management, where a management team (GP) will make the investment decisions. Similarly, the investors (LP) will be provided access to opportunities that can hardly be matched individually.
Professional management also has its advantages, such as the great capacity for research and negotiation to invest in large projects. This would be expensive and very complicated for an individual investor.
Due to all the aforementioned advantages, investing in infrastructure is a very popular strategy. However, like any investment, it entails risks, so it is important to make investment decisions that are in line with your objectives, wealth and risk profile.
This content is merely indicative. This content is merely financial training offered to you by Crescenta, without the intention of giving any type of personalised investment recommendation.
It is neither any type of advertising of financial instruments nor a recommendation or purchase offer.
Author
Sofía Cisneros
Communication and content - Crescenta
When you click on any underlined term, you can see a definition and example of each concept
When you click on any underlined term, you can see a definition and example of each concept
When you click on any underlined term, you can see a definition and example of each concept
Register and invest like the best
