BOSTON—In a new report, " Infrastructure Strategy 2022: A Pivot to the Digital Frontier ," Boston Consulting Group (BCG) and EDHECinfra provide a new perspective on the investment strategies and risk-adjusted performance of different groups of infrastructure investors.
Among the key findings of the report:
- North American Pensions Funds have the highest risk-adjusted returns in 2021 and are in fact the top ranked peer group. Other peer groups took more risk to achieve lower average returns, while Canadian investors are very close to the all-investor average. At the bottom of the risk-adjusted rankings, EU and UK pension funds take less risk but also achieve comparatively lower returns. As Frederic Blanc-Brude, director of EDHECinfra and a coauthor of the report, explains, “certain investors have gained exposure to different segments of the infrastructure universe over time and each segment has performed differently.”
- Oil and gas still pay. Although one-third of the surveyed investors have expressed that they want to decrease their exposure to conventional power generation, the main beneficiary of the 2021 recovery, after transport, was gas and conventional power generation—especially since wind levels were lower than usual. Those peer groups that stayed more exposed to these sectors benefited, while peer groups that have already mostly divested conventional power generation from their portfolios did not.
- Operational value creation is paramount. While operational value creation has always been a paradigm for value-add infrastructure investors, 90% of Core and Core+ investors agree that the focus will shift toward more hands-on value-creation work with their portfolio firms. As Wilhelm Schmundt, BCG's global head of the infrastructure investors’ sector and a coauthor of the report, sees it: “The steep increase in asset prices, dealing with inflation and the rise of factor prices, as well as secular trends like energy transition and digitalization, have made operational value creation a must-have capability for asset managers across all industry sectors. Limited partners are putting increasing scrutiny on understanding how general partners are building their respective muscles.”
- A pivot to the digital frontier. As the analysis shows, all investors are planning to overinvest in digital infrastructure going forward. While this also entails data centers, towers, satellites, and subsea connections, the appetite for broadband connectivity remains high. As Roman Friedrich, a BCG managing director and partner and a coauthor of the report, explains: “The increasing desire for higher speeds and reliable online access will lead inevitably to a huge expansion of fiber optic installations in new networks in developing nations as well as in existing networks in more developed countries. Ultimately, fiber will replace legacy (primarily copper) infrastructure completely, particularly as 5G rolls out.”
The report can be accessed here .
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com .
About EDHEC Infrastructure Institute
EDHECinfra® is a venture of EDHEC Business School and a provider of indices and analytics for the infrastructure investment universe. Because the majority of infrastructure assets are not publicly traded, there has traditionally been a vast knowledge gap when it comes to gauging the prices of these assets and their evolution. We are closing that gap with analytics and calculated indexes that already cover 25 countries representing an investable universe of 7,000 companies. We are based in Singapore and London. Visit edhec.infrastructure.institute
EDHECinfra maintains the infraMetrics® platform: an online information system that gives access to key market indices including the infra300® and infra100® series. InfraMetrics also includes a wealth of valuation data and analytics, risk metrics, a fund strategy analysis tool providing robust performance quartiles for any segment, strategy or vintage, and peer group analyses allowing investors to compare themselves against comparable segments of the market.