Private Infrastructure: Continued Positive Trend Through the Choppy Macro Environment
Private Infrastructure investment has proven to deliver stable and consistent returns over different economic cycles, demonstrating the resilience afforded by its defining characteristics: the essential nature of its business sectors, and protection afforded by physical real assets, the high barriers to entry, inflation hedge, and long-term, stable cash flows. These features are driving valuations up1, despite the external macro and geopolitical context.
But what are the real factors driving this positive evolution? Is it a mirage or secular behavior? At AltamarCAM, where we have been investing in the asset class for over a decade, we have seen empirical evidence and external factors that explain this robust performance no matter which economic cycle we are in.
This behavior can be attributed to the strong investment needs in essential infrastructure, which drives economic growth, combined with long duration and cash flow stability, with diverse revenue models, which allow the asset class to weather any macroeconomic downturn.
The positive evolution of Private Infrastructure valuations in this choppy macroeconomic cycle is driven by a combination of several factors.
Strong investment needs in the asset class
Exponential growth in the infrastructure sector requiring trillions2 of dollars in investment, driven by megatrends that are reshaping the global economy:
- Digitalization: Rising connectivity through e-commerce, IoT, remote work, and AI demand increased fibre, telecom towers, and data centers.
- Decarbonization: Shifting to renewable technologies results in over $4 trillion annual investments in energy infrastructure, encompassing renewables, energy storage, smart grids, and alternative fuels.
- Regionalization: Post-Covid-19, governments prioritize self-sufficiency, leading to increased investment in onshoring and reindustrialization, including intermodal logistics platforms, ports, railways, etc.
Strong operational performance
Infrastructure assets have shown strong operational performance1 over the last years, boosted by the increasing demand for basic services such as power, communications, transport, and health services as well as strong investment needs boosted by the megatrends described above. As a sample, the graph below shows the improvement of underlying operational metrics in AltamarCAM’s infrastructure portfolio since Covid-19.
Operating Evolution of AltamarCAM’s Infrastructure Portfolio1
Source: AltamarCAM sample of assets within both Altamar Infrastructure Income I FCR and Altamar Infrastructure Income II FCR. This comprehensive dataset shows operating figures of approximately 184 assets.
Infrastructure’s Robust Inflation Hedge: Mitigating the Effects of Interest Rate Volatility
Amidst the prevailing macroeconomic conditions and heightened geopolitical uncertainty that contribute to increased volatility in financial markets, Infrastructure’s cash flow stability and positive inflation hedge more than offset the negative impact of interest rates on valuations, according to Macquarie’s regression analysis:
The impact of inflation and interest rates on valuations based on regression modelling
Sources: Macquarie Asset Management, Macrobond (March 2023). Analysis conducted between March 2017 and December 2022.
Past performance is not necessarily indicative of future results, given that the current economic conditions are not comparable to prior conditions, which may not be repeated in the future. For illustrative purpose only. Please note that the analysis only captures the impact of macroeconomic variables and does not account for other factors that impact the asset class.
Moreover, due to the long-term nature of Infrastructure investments, both independent valuators and investors employ long term discount rates to estimate the value of an asset, thereby mitigating the short-term hike of interest rates.
All in all, valuations continue to increase
Due to all the factors described above, Infrastructure continues to show stable entry valuations, even amid a pronounced surge in interest rates. This is evident in the graph below, where median entry multiples remain stable over the past 6 years while leverage continues to be moderate.
Entry Multiples EV/EBITDA and Net Debt /EV (Median) of Infrastructure investments
Source: AltamarCAM portfolio (aggregated data from Altamar Infrastructure Income I FCR, Altamar Infrastructure Income II FCR, CAM GIF II RAIF portfolios), https://infralogic.com/). Median Figures
All these factors have justified the solid evolution of the asset class during these turbulent years. As seen in the graph below, AltamarCAM’s Infrastructure portfolio has delivered stable performance1 over the past 8 years.
Historical quarterly performance of AltamarCAM’s underlying Infrastructure portfolio in local currency
Sources: AltamarCAM Infrastructure Portfolio Quarterly Valuation Evolution. It includes Altamar Infrastructure Income I FCR and Altamar Infrastructure Income II FCR funds.
In summary, Private Infrastructure assets continue to increase in value despite the macro uncertainty. This resilience can be attributed to their intrinsic characteristics and essential nature, allowing them to generate stable returns over the long term.
1 Past performance is not necessarily indicative of future results, given that the current economic conditions are not comparable to prior conditions, which may not be repeated in the future. There is no guarantee that the Fund will have similar results as previous funds.
2 Blackrock – 2024 Private Markets Outlook
This document has been prepared by Altamar CAM Partners S.L. (together with its affiliates “AltamarCAM“) for information and illustrative purposes only, as a general market commentary and it is intended for the exclusive use by its recipient. If you have not received this document from AltamarCAM you should not read, use, copy or disclose it.
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