Over the past two years, global interest rates have risen significantly in response to persistent inflation, resulting in elevated macroeconomic uncertainty.
More recently, inflation has been declining and short-term interest rates are showing signs of stabilisation. Current forecasts from central banks and economists globally suggest that interest rates have peaked and are expected to decline from the second half of 2024. We are seeing early signs of this trend with reductions already made by central banks in interest rates in the EU and Canada and more recently, in August, a reduction by the Bank of England.
The stabilising interest rate environment has supported continued improvement in the volume of secondary market transactions. Despite this, a disconnect continues to persist between private market valuations of similar high-quality core infrastructure assets, as evidenced by recent secondary market transactions, and the valuations currently ascribed by public markets.
New opportunities
As a long-term investor in the sector, BBGI believes that growth in the infrastructure asset class will be driven by demographic trends, the modernisation and renewal of ageing infrastructure, digitalisation, and decarbonisation. With our robust balance sheet and strong financial liquidity, we are well positioned to navigate the evolving infrastructure landscape. Our rigorous and disciplined approach to investments and capital allocation enables us to focus on high quality assets with secure long-term cash flows and a strong correlation to inflation, thereby strengthening the overall composition of our portfolio and generating long-term value for our shareholders.
The immense, unmet global demand for infrastructure is the most significant long-term driver for investment in the sector. According to the Global Infrastructure Hub, the global gap between government infrastructure spending and investment required will reach USD 15 trillion by 2040. The required public investment in infrastructure appears to be constrained due to considerable public debts and ongoing deficits providing specialist investors like BBGI an opportunity to play a critical role. Our experienced team is committed to identifying attractive core infrastructure opportunities with long term cash flow visibility, strong inflation linkage, and a strong social purpose which will allow us to diversify and enhance the composition of our core infrastructure portfolio.
North America
Canada:
To support Canada’s investment ambitions, the Canadian Infrastructure Bank has a mandate to invest in infrastructure that benefits Canadians and attracts private capital, with an objective to invest CAD 3-5 billion annually. Canada is in the midst of its ‘Investing in Canada Plan,’ which launched in 2016 with a commitment to invest over CAD 180 billion until 2028 for infrastructure projects across five streams: Public Transit, Green, Social, Trade and Transportation, and Rural and Northern Communities.
US:
Deglobalisation is an important megatrend that will bolster private infrastructure investments. The onshoring of manufacturing capacity and an increased focus on energy security will necessitate significant investments. Supporting infrastructure for transportation networks, energy supply, utility services, and high-speed internet access will be needed to safeguard such investments, creating tailwinds for the sector in the US. The Infrastructure Investment and Jobs Act provides for USD 1.2 trillion in spending, USD 550 billion of which will be new federal spending to rebuild roads and bridges, improve clean water infrastructure resilience, enhance EV charging infrastructure, expand broadband access, and more.
BBGI is confident that an attractive pipeline of social infrastructure projects will continue to emerge in the US and Canada. With 17 investments across North America, an experienced team, and strong industry relationships, BBGI is well positioned to originate investment opportunities in the region.
EU:
The European Commission’s infrastructure investment priorities include becoming the first climate-neutral continent, creating an economy that ensures social fairness and prosperity for all, modernising Europe for the digital age, and enhancing Europe’s role and influence in the global arena. By clearly defining its priorities and providing supporting initiatives, the EU establishes a framework that significantly influences public and private infrastructure investments across various sub-sectors in its member states. The energy and transportation sectors are significantly impacted by the ambitions of the European Green Deal. Similarly, the EU’s digital strategy, with a clear focus on data, technology, and infrastructure, aims to make digital transformation beneficial for people and businesses, while also contributing to the target of a climate-neutral Europe by 2050. Both initiatives are part of the wider EUR 800 billion NextGenerationEU plan. We anticipate a continuous flow of pipeline opportunities in the core infrastructure space. BBGI has established a strong investment presence in Germany and the Netherlands, and we are well-positioned to capitalise on future social infrastructure opportunities.
UK:
The Infrastructure and Projects Authority provided a robust assessment of infrastructure investment needs in the UK over the next decade, estimating a total of GBP 700-775 billion. The new UK Government plans to bring together key institutions and present a compelling proposition for investors, leveraging private capital to support the delivery of these investments. The Labour manifesto outlined a comprehensive plan to boost infrastructure investments, emphasising sustainable development and economic growth, focussing on housing development, clean energy, and transportation. Social and transportation infrastructure in the UK have been core investment areas for BBGI and new opportunities may emerge as a result of the government’s commitment to infrastructure initiatives and its constrained balance sheet.
Australia
The Australian Government remains committed to a ten-year, AUD 120 billion infrastructure pipeline. With a focus on nationally significant infrastructure projects, this will continue benefiting investments in the land transport network and other key freight routes, as well as in projects supporting broader national priorities such as social and affordable housing. Combined with the planned activities from State and Territory governments, there is a significant effort towards social infrastructure, including hospitals, education, housing, and energy transformation.
Outlook
As governments continue to run deficits and the demand for upgrading and constructing new infrastructure grows globally, there is an ongoing need for private sector investment in infrastructure. With our internal management structure and a clear alignment with investors’ interests, BBGI will remain patient and disciplined, transacting only when an opportunity is clearly accretive to our portfolio metrics and investor returns. By leveraging our extensive network, we identify and screen opportunities in the core social infrastructure sector, positioning ourselves to seize the right investments. BBGI remains committed to disciplined growth and balanced portfolio construction, and has grown from 19 social infrastructure assets in 2011 to 56 today, including roads, schools, healthcare facilities, transportation, and civic infrastructure.