Globally, infrastructure investments benefit from long-term programmes in the areas of energy, digitalisation, and transport. However, Bertrand Cliquet, Lead Portfolio Manager and Analyst in the Global Listed Infrastructure team at Lazard Asset Management, emphasises that this general trend alone does not guarantee attractive investments. Investors are therefore well advised not to view infrastructure as a homogenous segment, but rather to pursue a decidedly selective investment strategy.
Cliquet stresses that the quality of the underlying business models and a realistic valuation are the decisive criteria for successful investments. In this context, stable, regulated infrastructure companies, in particular, offer attractive opportunities, as their business models can generate predictable revenues. The global growth drivers for infrastructure, such as the increasing investment need in power grids, water supply, transport routes, and communication networks, remain. Additionally, digitalisation, electrification, and the expansion of renewable energies are accelerating capital requirements, thereby diversifying the spectrum of investment areas.
Risk Assessment and Focus on Quality
Bertrand Cliquet explicitly warns against defining infrastructure investments solely based on individual hype topics such as Artificial Intelligence or data centres. Although such developments can generate additional demand, they are not automatically synonymous with attractive investment opportunities. As proof of this, Cliquet cites the rise and subsequent collapse of many shares in the renewable energy sector, which illustrates that a long-term trend does not necessarily represent a sustainably good investment.
For Cliquet, a successful infrastructure investment does not begin with following megatrends, but with a comprehensive analysis of potential risks. Infrastructure is by no means risk-free; regulatory interventions, political decisions, technological changes, or failed developments of individual projects can significantly influence returns. The focus in stock selection is therefore on valuation, as the price paid is a crucial success factor. The Lazard Asset Management team thus concentrates on listed equity companies whose business models enable long-term predictable and highly visible revenues.
- —Monopolistic structures
- —Regulated or long-term contractually secured revenues
- —Extensive inflation linkage of cash flows
Examples of such investment areas include regulated electricity, gas, and water networks, toll roads, airports, monopolistic rail networks, and telecommunications infrastructure. Cliquet notes here that such investments might be perceived as "boring" but are profitable. Instead of aiming for broad coverage of various infrastructure segments, Cliquet and his team prefer a concentrated selection process where fundamental data and valuation are decisive. This can at times lead to significant regional deviations from industry indices. Currently, the portfolio manager identifies attractive opportunities particularly in Europe among regulated utilities, which despite increasing investments in power grids and electrification, are still traded at valuation discounts. These companies, Cliquet states, are growing and investing massively, while simultaneously exhibiting attractive valuations.
The Relevance of Active Management
Given the heterogeneity of the infrastructure investment universe, an active investment approach is essential, according to Cliquet. The primary goal is not unconditional participation in every upturn, but rather capital preservation across market cycles and the generation of attractive risk-adjusted returns. This requires a highly selective approach and a precise distinction as to which infrastructure companies can deliver permanently stable returns.
