Infrastructure was once seen as a source of steady income that would hopefully keep pace with inflation, but probably not offer much more. According to two infrastructure specialists, that view is now outdated, particularly for energy and power.
Jean-Hugues de Lamaze of Ecofin Global Utilities and Infrastructure and Daniel Chu of ClearBridge Global Infrastructure Income Fund both argue the sector's fundamentals have shifted, yet markets are still underestimating the capital required. The bull case rests on renewing ageing infrastructure, much of it built over 50 years ago, the electrification of the economy, and growing demand from power-hungry users such as AI and data centres.
The investments needed will be large. De Lamaze points to Germany's infrastructure plans, which could require more than €700 billion between 2026 and 2035. Governments are unlikely to fund all of that given the state of public finances, creating opportunities for private capital, often in partnership with the public sector.
De Lamaze also says many utilities' business models have changed for the better, especially in power, with a greater share of revenue coming from longer-term contracts rather than short-term sales. That provides greater certainty for earnings if much of the sector invests in expanding capacity in the years ahead.
Despite these tailwinds, both managers say valuations for listed infrastructure funds remain at a significant discount to where similar assets are valued in private deals. Investors want more proof of successful execution and earnings growth, says Chu, which could come by 2028 – and with it, at least something of a rerating for the sector.