5 Reasons to Consider Investing in Infrastructure: From Stable Cash Flow to Energy Transition

If you are looking for a financially appealing investment that can also benefit society, consider investing in infrastructure.

Infrastructure investments offer stable and recurring cash flow, protection against inflation, sustainable and socially useful projects, and a unique window of opportunity to invest in the European energy transition.

Here are five reasons why you should consider investing in infrastructure.

1: Stable and Recurring Cash Flow

Infrastructure investments are particularly suitable for institutional investors looking for attractive and stable returns. Depending on the project’s stage of development and lifespan, average annual returns of 5% to 7% can be expected, with capital gains at exit allowing IRRs to reach 8% to 12%.

The revenues received by the projects benefit from very long-term visibility, often several decades, independently of the economic cycle. They are largely uncorrelated with traditional financial markets, providing a stable source of income.

2: A Good Protection Against Inflation

Infrastructure investments are an effective hedge against inflation. Most contracts provide for indexation to the consumer price index, whether for tolls, rents, water prices, or electricity rates. The income is automatically adjusted to inflation, thus protecting the investor against the devaluation of their returns and capital.

3: Sustainable and Solid Projects

The projects financed are usually public infrastructures that are essential to the economy and society, such as transport networks, hospitals, universities, water treatment and supply plants, power generation plants, or telecommunications equipment.

They correspond to needs that will not disappear in the short term and are therefore particularly sustainable. The projects often rely on proven risk transfer mechanisms, and the operators operate in regulated or less competitive markets with a physical and/or contractual monopoly.

4: Tangible and Socially Useful Investments

Investments in infrastructure are tangible and respond to concrete needs. They contribute to improving the living and working environment, economic efficiency, and participate in a dynamic of development and equipment of communities, companies, and more generally of urban, rural or mixed areas, while creating jobs.

Privatization can have virtuous effects, particularly true of investments in water networks, which suffer from enormous losses of a vital resource due to leaks that can often represent nearly a third of the volumes treated.

A private operator will naturally be motivated to invest in upgrading its network to avoid losing money. By investing in infrastructure, investors can achieve an attractive return while making a positive contribution to society.

5: A Unique Window of Opportunity

Europe has launched several massive investment plans, in particular to accelerate the energy transition, on an unprecedented scale, such as the Green Deal (EUR 7 trillion), the post-Covid Next Generation EU recovery plan (EUR 800 billion), the „Fit for 55“ program (EUR 3.7 trillion) and the REPowerEU plan (EUR 300 billion).

Currently, there is no shortage of infrastructure investment opportunities, from building renewable energy plants to the widespread installation of charging stations for electric vehicles, by way of the densification of fiber optic networks, the renovation of public hospitals and universities, and the renovation or upgrading of water networks and transportation infrastructure.

Direct investments in infrastructure are usually made through private equity funds, which are closed after their launch. Given the strong deal flow we are currently seeing, several infrastructure funds are launching new vintages, providing investors with a window of opportunity.

If you are interested in infrastructure investment, keep in mind that Switzerland has always favoured public financing for all its infrastructures and thus has very little recourse to private financing, unlike its European neighbours.

However, the urgency of the energy transition and the huge investments it requires may force a change of attitude in this area. Investing in infrastructure can provide an attractive return while making a positive contribution to society, and the current investment plans in Europe offer a unique window of opportunity to invest in sustainable and socially useful projects.

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