Some believe that the low-risk-and-stable-return mantra of the infrastructure offering has been debunked during the recent economic downturn. There has certainly been some instability in the listed infrastructure fund market, with funds pulled down in value by association with their parent. The unlisted model seems to have been largely unaffected, however, and fundraising is tough but continuing.
Macquarie's Global Infrastructure Index,6 which tracks the stock performance of companies engaged in the management, ownership, and operation of infra-structure and utility assets, has continued to outperform the FTSE All-World Group index (Figure 5).
Some infrastructure, such as social infrastructure in partnership with government, is low risk and largely immune from wider economic activity. However, other sectors, particularly those that rely on user demand such as airports, ports, and real toll roads, have seen downturns. While the infrastructure proposition may be low risk, this does not mean that over the lifetime of the investment there will not be periods of volatility. This in turn is leading some investors to challenge fund managers to deliver higher returns on future fundraisings.
A factor that has affected virtually all transactions has been the impact of low inflation and deflation. Many long-term forecasts for income growth are inflation-linked and assume constant inflation over the long term. This does not create problems if both revenue and costs are linked to the same indices, but as soon as there is a mismatch, there could be a potential erosion of cash.