When we last released our Infrastructure Insights six months ago, the world was a different place. The personal tragedies, economic hardships and disruptions to daily life caused by COVID-19 have undoubtedly left long-term impacts. This article explores what COVID-19 disruptions mean to infrastructure investing.

Traditional infrastructure investments are often characterized by average growth and predictable long-term cash flows. After the 2008 global financial crisis, financial resiliency has been a key focus of infrastructure investors when evaluating investment opportunities. As a result, most infrastructure assets were generally better positioned to withstand a pandemic than other sectors. Nevertheless, the sudden global economic crisis spurred by COVID-19 is testing the resiliency of infrastructure assets in ways most investors did not foresee.

The infrastructure asset class most impacted has been transportation. Transportation by airplanes, ships, buses and trains significantly dropped as most people stay home, work remotely and avoid unnecessary travel during the pandemic. It is clear that some transportation assets will not recover to pre-pandemic operating levels until after an effective vaccine is widely available. COVID-19 will certainly re-shape and expand the scope of investors’ stress-testing for resilience, and new infrastructure investment trends are sure to emerge.

With vaccines reportedly on the horizon and significant dry powder to deploy, infrastructure investors are now actively pursuing more investment opportunities relative to the second quarter of the year. The market disruption caused by the pandemic has and will create new investment opportunities. Current drivers include distressed situations, sellers seeking cash to reduce debt and asset classes that have proved resilient during the pandemic. Over the longer term, we expect an increase in state and local agencies seeking private investments to meet the increasing demand for infrastructure, while the agencies struggle to recover from the economic impacts of the pandemic.

The telecommunications infrastructure asset class has remained particularly strong during the pandemic. As many continue to work remotely and attend school virtually, data demand is high. In response to this, service providers seek to maintain stable connectivity, build new networks, increase data center capacities and expand product offerings.

Looking forward, we expect to see:

• Continued momentum in infrastructure investing due to the stability of the sector and strong investor interest;

• Greater diversification in infrastructure investment portfolios to better hedge against future disruptions;

• New infrastructure trends emerge as the long-term “new normal” takes shape; and

• A focus on value-based success driven by the expertise of infrastructure fund managers as competition for deals increases.

Investors and the general public will adjust to the new landscape. The winners at the moment appear to be the technology-enabling infrastructure class. However, the entire infrastructure space (outside of transportation-focused infrastructure) appears to be the nicest house in a bad neighborhood. The next year or more will be difficult for many asset classes, but infrastructure assets will represent more predictable long-term cash flows as investors consider where to deploy capital…

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