Infrastructure Investment In A Post-COVID World

• Published date: 09 November 2020
• Subject Matter: Finance and Banking, Energy and Natural Resources, Coronavirus (COVID-19), Financial Services, Fund Management/ REITs, Energy Law, Utilities, Renewables, Government Measures, Financing, Operational Impacts and Strategy
• Law Firm: Ocorian
• Author: Mr Simon Burgess

Head of Alternative Investments, Simon Burgess, examines how investors may turn to infrastructure as governments look for support in completing projects and rebooting economies.

Ever since the global financial crisis of 2008, the investment landscape has presented a whole spectrum of challenges and opportunities. In the immediate aftermath of that crisis, stock markets endured extended periods of volatility and interest rates around the world fell to historic lows, where they have largely stayed since.

While stock market swings might have provided some buying opportunities, investors started to look beyond the more traditional equity/bond approach in order to realise returns. Alternative assets have been one of the largest beneficiaries of this, with figures showing that the sector, which includes private equity and infrastructure, has grown steadily, rising from $3.1trn assets under management in 2008 to $8.8trn in 2017, and is predicted to grow to around $14trn by 2023.

The COVID-19 pandemic has, if anything, reinforced a focus on alternatives, owing to the increased volatility seen across global stock markets. And it is infrastructure that has the potential to be the big winner.

Infrastructure in itself is something of a broad church, covering projects such as renewable energy, utilities, transport and logistics, social infrastructure (hospitals, schools, community housing), and digitalisation via 5G and broadband extensions. Investment in infrastructure is popular with investors, mainly because of the long-term sustainable income streams from projects that are often backed by governments.

Renewable energy is worthy of particular note here, especially in view of net zero carbon targets that are being established in countries around the world and through accords such as the Paris Agreement. This drive to carbon neutrality will create a significant infrastructure investment need.

It is generally recognised that governments around the world can't complete the projects important to them without private finance help. Indeed, according to the G20's Global Infrastructure Hub initiative, as at April 2019, there is a $15 trillion infrastructure investment gap. Between now and 2040, it is estimated that $94 trillion of investment is required but only $79 trillion is likely to be funded.

The COVID-19 pandemic may well make that gap even wider. With governments around the world having to provide economic support to individuals and businesses, they may have to...