Produced in partnership with Macquarie Asset Management.
In the early 1990s, a proposal by the NSW State Government to build a toll road in Sydney’s North-West to improve travel times and reduce congestion was initially met with apprehension by local residents.
Today, that 20-kilometre stretch of road known as the M2 connects Sydney suburbs from Baulkham Hills to Lane Cove and carries over 120,000 vehicles daily.
Back in 1994, Macquarie arranged the financing for the construction of the $500 million Hills Motorway, marking the first successful placement of $155 million in publicly listed equity for an infrastructure project.
Since then, infrastructure has become a globally recognised asset class, providing many investors with stable, inflation-linked returns, and potential diversification benefits.
Last year, global private infrastructure investment hit $1.5 trillion, according to McKinsey.
The management consulting firm estimates that a further $106 trillion in public and private investment globally is needed through to 2040 to meet the need for new and updated infrastructure, particularly in the verticals of clean energy, digital and social infrastructure.
This opportunity has seen a proliferation of infrastructure managers, although not all strategies and funds represent genuine infrastructure assets, according to Chris Leslie, senior managing director, green investments, Macquarie Asset Management.
“Some of these strategies appear to have drifted from the core principles of infrastructure investing,” he told financial advisers at the recent MAM Private Wealth Forum in Sydney.
“They may sound compelling, but the question is whether they genuinely qualify as infrastructure. Interestingly, we’re seeing strategies badging assets like school transport and education businesses as infrastructure. In reality, many of these look more like private equity or real estate, as they don’t meet the test of social dependency,” Leslie said.
“When market conditions become more challenging, investors who stray away from the true definition of infrastructure may face increased risk exposure.”
To satisfy the true definition of infrastructure, assets must be essential to support economic and social activity, and provide predictable and stable cashflows, which may be linked to inflation, according to Ani Satchcroft, MAM’s co-head of infrastructure for Asia Pacific.
“Infrastructure is a social necessity that people depend on and need to use every day in a seamless way,” she said, pointing out that through MAM’s private infrastructure funds, wholesale investors in Australia can gain access to Macquarie’s global infrastructure portfolio, which supports the essential services relied upon by over 300 million people per day.
“When you think about what an infrastructure investment does, it serves the community and that represents a huge opportunity for investors and is a privilege for us.”
To distinguish quality managers, investors need to understand the history and definition of infrastructure and the role it can play in a portfolio, Leslie said, summing up that proposition as “potentially improving the resilience of a portfolio without giving up the upside”.
While infrastructure assets display some defensive characteristics, Leslie said private infrastructure had outperformed global equities over the past 20 years with less volatility, pointing to data from the Cambridge Associates Infrastructure Index for private infrastructure and the MSCI World Index for global equities.
“There are only a limited number of recognised investment asset classes, each serving a distinct role within a portfolio. Infrastructure is one of these, and its purpose should be considered carefully and with discipline,” he said.
“If an infrastructure manager is suggesting they can deliver return expectations that resemble those typically seen in private equity – for example, around 20 per cent – it should prompt investors to carefully assess whether the opportunity truly aligns with infrastructure fundamentals.”
“Always keep the social dependency [element] in mind because that’s where things can get off track.”
Since the 1990s, there have only been a handful of times when the scope of infrastructure has expanded, according to Leslie, pointing out that on these occasions MAM was at the forefront.
The first time was in 2007, sparked by the launch of Apple’s iPhone, which turned telecommunication and cell phone towers from private equity investments into an infrastructure play.
That same year, a Macquarie-led consortium acquired US wireless tower operator, Global Towers Partners, which formed the foundation of the group’s expansion into communications infrastructure.
Leslie, then chief executive of Macquarie Investment Partners, led that transaction.
“Suddenly, mobile telephony went through the roof and society became dependent on cell towers in a way that it hadn’t been before,” he recalled.
The mid 20-teens marked the second change. It highlighted the critical nature of digital infrastructure, including data centres, hyperscalers and fibre, for a connected, high functioning society.
In 2020, a Macquarie-led consortium acquired a majority stake in hyperscaler AirTrunk in a deal that valued the company at around $3 billion. Four years later and after a period of active management by MAM, it sold AirTrunk to Blackstone. The sale valued Airtrunk at more than $24 billion, marking the largest-ever data centre deal globally.
Satchcroft led that transaction.
“When we think about the evolution of infrastructure, we’re focusing on how communities work and what communities need, rather than looking at the last precedent deal and doing the same thing,” she said.
“We’re looking at the future needs of communities and how we can match private capital to that unmet need.”
According to Leslie, MAM took its time to invest in digital infrastructure.
“Data centres are an accepted part of the infrastructure universe now, but they used to be seen as backup drives for your general ledger, and for a long time we thought they were fairly passive and exposed to strong competition,” he said.
“Over time, we identified that [the nature of data centres] was changing. Today, when people pull out their phones, they need to do things like book transport, track their location and transfer funds immediately, and so latency is a key commodity as far as data centres are concerned.”
Another major area of interest among infrastructure investors is clean energy, as countries and corporates seek to achieve their sustainability goals and move towards net zero.
Concerns around the insatiable power consumption of data centres and hyperscalers has also ignited debate about renewable sources of energy.
In 2023, more than half of private investment in infrastructure projects was green investment, mostly renewables but also incorporating other infrastructure sectors, according to a report by the Global Infrastructure Hub and World Bank.
“We believe, wind, solar and batteries will be a very big part of the solution,” Leslie said, adding that those three account for 90 per cent of new generation capacity in the US in 2025 while gas represents just 7 per cent, according to the US Department of Energy.
In our view, as the needs and expectations of communities evolve, the focus on digital infrastructure and green energy is set to intensify. Furthermore, uncertain economic and geopolitical conditions are increasing the appeal of assets that can boost portfolio resilience and deliver predictable, stable, inflation-linked returns.
“With clouds gathering in terms of persistent inflation, volatility in the outlook and the numbers in the US looking a bit weak, investors are thinking about where they should put their money at the moment and our opinion is that infrastructure has an important role to play,” Leslie said.
