More information available at: Preqin Global. Infrastructure. Report alternative igent data. ISBN: 2. Report. More information available at: Preqin Global. Infrastructure. Report alternative igent data. over the period, the share of public pension funds and of endowment plans dropped .. Source: Preqin Global Infrastructure Report. Figure 9.
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Climate change is driving a major reassessment of the role of infrastructure in investment portfolios. Consider the example of British railway investment in the mid infrastruccture century.
The development of stock exchanges across Europe and North America in the s was largely due to the huge capital needs for railway infrastructure. This investment increased the size of the British rail network from just 98 miles in to over 6, miles by Of course, these Victorian and Regency period investments were not without risk. Due to over-optimistic revenue cases and increasing capex costs remember those?
Both today and in the past, forecasting the impact of new technologies is not easy and markets are prone to both over- and under-shooting. Fast forward toand we have a new wave of technology-driven infrastructure needs and a wide range of investors contemplating investment.
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This has spawned the renewable energy industry and rippled through other sectors from electric vehicles and batteries. For renewable energy infrastructurd, BNEF observe investment volumes have risen 5-fold in the decade to ; rapid growth, though not quite matching that of Victorian railway investment.
Interestingly, the financing structures created for 19th- and 20th-century infrastructure investment are changing; most noticeably with regards to long-term institutional investors. Pension funds, insurance companies, and sovereign wealth funds are investing in infrastructure assets more directly, rather than just buying listed shares of utilities and other infrastructure corporations.
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The causes of this change include the success of similar models in private equity and venture capital, the willingness to hold illiquid assets for long periods, and perceived governance issues around listed corporations. One perceived attraction of unlisted funds is they avoid the day-to-day volatility — and occasional dramatic crashes — of listed stocks. These periods of heightened volatility were seen not just in the s Railway Mania, but in recent infrastruture corrections.
However, just because an asset is not being priced continuously, does not mean that its value is not changing over time. For infrastructure investors, understanding the true risks they are accepting in an ongoing challenge — and one that is potentially limiting the size of the market.
The private equity market offers a number of benchmarking and performance assessment approaches that are starting to be used for unlisted infrastructure, at the fund level Wilde and Wilde, B and for individual assets Blanc-Brude et al.
There remains a need for far more data, which is now starting to be addressed, as discussed in Blanc-Brude et al. Infrastructure investing and climate change are closely linked in two ways. Similarly, it has lreqin argued that these long-term investors can find new ways to provide patient, socially responsible capital Monk, On the other hand, climate change is a potentially huge problem for long-term investors.
Climate effects can be direct, such as increased flood risks for transport infrastructure, which although potentially decades away are vital for long-term assets. Interestingly, the glpbal effects — arising from measures to tackle climate change — can be more immediate.
For example, increasing renewable energy capacity has knock-on effects on existing energy infrastructure and, in a more extreme case, widespread use of batteries may eliminate the need for various infrastructure grids. As an infrastructure practitioner, I have seen first hand how hard such risks are to prdqin rigorously. A related issue is that infrastructure continues to be marketed infrastrructure a low volatility investment with predictable cash flows see for example, AMP, Whilst this may generally be true overall, it has often not been the case, from rail revenue forecasting issues in the s to the present day.
Understanding what risks should be priced, and how, remain open questions. Bringing together business academics, scientists, investors and policymakers will allow for the broadest possible examination of this complex and important area. History is a helpful guide, but there is clearly much work still to be done in charting the future.