Infrastructure Investments & Your Super

What are infrastructure investments?

Infrastructure enables people, goods, commodities, water, energy and information to move about efficiently. Traditionally infrastructure investments are investments in physical assets such as roads, bridges and tunnels, airports, seaports, railways and hospitals. Infrastructure investments may also include assets used in telecommunications, in water supply and sewerage and in power generation, distribution and transmission.

More recently the definition of infrastructure is widening to include data infrastructure. For example, data centres, where organisations store computer systems which process and store data.

Steady income

Infrastructure assets tend to provide steady cash income. As infrastructure assets provide essential services (e.g. water, electricity, transport) the demand for these services is reasonably consistent and therefore the cash flows they produce tend to be relatively stable and reliable and less dependent on the economic environment at the time.

Inflation protection

Assets like toll roads and airports may have regulated fees which increase in line with inflation. This can help to protect investors from inflation risk.

Long-term investment

Infrastructure is generally considered a long-term investment as most infrastructure assets (such as airports and ports) have a long-life span and their revenues are often supported by regulation or long-term contracts, providing a higher degree of certainty of the cash flows they will produce over the long-term.

High barrier to entry

There are a number of factors which make it difficult for newcomers to enter the infrastructure market. This has the impact of reducing competition which helps protect profitability.

Investment risks

All investments carry risk and infrastructure investments are no different. Infrastructure investments are considered to be mid-risk, in that they exhibit both ‘growth’ and ‘defensive’ characteristics. The key risks when investing in infrastructure are:

Infrastructure assets can cost a lot, so direct investments in infrastructure assets typically require considerable capital which may increase concentration risk in an investment portfolio.
Regulatory and political factors can impact infrastructure investments including, for example, the impact from delays that may arise in obtaining planning approvals and permits and impacts on operations arising from changes in pricing regulations and licensing requirements.
Infrastructure assets are typically considered to be relatively illiquid as they can be difficult to sell.

Ways to invest in infrastructure assets

Investors typically obtain exposure to infrastructure assets in the following ways:

Direct – investing directly into companies that own and/or operate infrastructure assets;
Infrastructure funds – investing in funds whose investment strategy is to hold interests in a portfolio of infrastructure assets; and
Listed Infrastructure – investing in infrastructure entities whose securities are publicly traded.

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Infrastructure investments and your super

What are infrastructure investments?

Why invest in infrastructure?

Investment risks

Ways to invest in infrastructure assets

Want to learn more?

Property and your super

Alternative assets and your super

Private equity and your super