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Jens Zimmermann

Jens Zimmermann

Senior Equity Analyst Energy & Utilities

Infrastructure stocks tend to offer solid dividend yields, which lends them appeal as investors struggle to generate returns amid low or even negative interest rates in many parts of the world. This low or negative interest rate environment, which aids the approval process for new projects, should remain a tailwind for the “Infrastructure – Closing the gap” Supertrend in the months ahead. Separately, climate change concerns are creating powerful regulatory and political catalysts within the infrastructure space. Finally, our new subtheme “Smart cities” focuses on the infrastructure challenges facing fast-growing urban centers, including new challenges revealed during the coronavirus pandemic.

Listed infrastructure: The “It” asset class

Listed infrastructure is a young but fast-growing asset class. Based on estimates from the Global Listed Infrastructure Organization (GLIO), assets under management (AuM) for listed infrastructure funds have swelled to an estimated USD 108 billion in 2019 from USD 17 billion in 2010. At the same time, the total number of global listed infrastructure funds has more than doubled to about 60 from 25. GLIO projects that AuM could triple again and surpass USD 300 billion over the next ten years.

In the past, investing in infrastructure assets was only accessible to the private equity sector: institutional investors bought these physical assets directly in order to gain access to stable cash flow streams. In recent years, the supply of available infrastructure assets has become more limited so fewer assets are chased by a growing number of private equity funds. As transaction prices for infrastructure assets increase, lofty valuations present the main challenge for private equity infrastructure managers looking to deploy raised capital.


Global Listed Infrastructure Organization

Listed infrastructure companies operate existing infrastructure assets (toll roads, airports, etc.). When investors (i.e. listed infrastructure funds) buy the shares of listed infrastructure companies, they acquire existing infrastructure assets with ongoing cash flow streams.

Accordingly, listed infrastructure companies have become an attractive asset class for the growing number of listed infrastructure funds, as well as for private equity funds that are looking for opportunities to deploy their capital. As a lot of “dry powder” (i.e. raised but not spent capital) from private equity funds is waiting to be invested in infrastructure assets, listed infrastructure companies can offer a short-term deployment of this capital or even become an attractive long-term investment alternative to physical infrastructure assets2.


Build to boost

A confluence of factors, including slowing GDP growth, aging transport systems and climate change concerns continue to drive transport infrastructure investments around the globe.

Mexico, for example, announced a USD 43 billion infrastructure program to kick-start its economy after it slipped into a technical recession in 2019. The goal is to deliver annual GDP growth of more than 4% between 2020 and 2024 from 147 infrastructure projects, many of which are in the transportation sector, and to raise the share of investments in Mexico’s GDP to 24% from 20.5% currently.

The Philippines has launched a USD 177 billion infrastructure program called “Build, Build, Build” to raise spending to 7% of GDP by 2022 from 2.6% in 2015. This is in response to its considerable traffic problem: the World Economic Forum ranks the country’s quality of transport infrastructure at 102 out of 141 countries. The capital city, Manila, ranked second out of 416 cities in the TomTom Traffic Index 2019, which measures urban congestion. According to the TomTom Index, people are losing 10 days and 17 hours each year due to traffic during rush hour. The government aims to cut the two million cars that move every day through Manila’s main traffic artery by a third.

Germany is also trying to revive its slowing economy with the biggest modernization program (EUR 86 billion over 10 years) in the 180-year history of its railway system. Increasing the number of long-distance train travelers to 260 million by 2030 from 148 million in 2018 should also support the government’s climate goal to “dramatically” cut CO2 emissions.

Energy and water

Brace for change

Climate change, coupled with a growing world population, is forcing urgent changes in terms of power generation and water supply on governments around the world. The International Energy Agency (IEA) projects in its 2019 World Energy Outlook that the fuel mix in power generation has to change drastically under its Sustainable Development Scenario (SDS), which aims to limit global warming to 1.5°C by the end of the century. Under the SDS, more than 40% of global electricity supply will need to come from solar and wind by 2040 in order to cut carbon emissions meaningfully. Electricity generation capacity for wind and solar will therefore need to increase more than seven-fold to reach that goal, according to our calculations.

This requires a rapid build-out of power generation infrastructure for wind and solar energy. Furthermore, transmission grids need to be upgraded because the share of intermittent electricity supply from renewable energy sources will have to grow exponentially. Utility companies will benefit from this energy transition because they have a large share of renewable energy in their generation mix and are growing their asset base through grid investments in their regulated distribution businesses.

coal, oil and gas demand forecasts



Natural gas remains an important bridge fuel because it is cleaner than other fossil fuels (oil and coal). Accordingly, under the SDS, demand for natural gas will plateau between 2020 and 2030 and then start to decline gradually until 2040 (just a 2% drop from 2018 levels). Operators of natural gas infrastructure, including gas pipelines or liquefied natural gas terminals, will continue to benefit from stable gas demand going forward, even under the SDS. Nevertheless, gas pipeline operators still have to cut carbon emissions or face losing access to financing for new gas pipeline projects.

Other fossil fuels face a different fate. Coal demand would need to drop by 62% from 2018 until 2040, while oil demand would need to fall by 31% (around 30 million barrels per day) through 2040 to meet the 1.5°C global warming target under the SDS.

Zero-carbon nuclear energy also remains a key bridge fuel under the SDS, albeit less important than natural gas. The IEA projects that the share of nuclear energy in global electricity production will remain fairly stable at 11% through 2040 compared to 10% in 2018.

Access to clean water is another significant challenge that many countries will have to manage carefully. Water demand could grow by another 20% to 30% through 2050, according to the United Nations (UN) World Water Development Report 2019. As a result, the UN predicts that up to 5.7 billion people, mostly in Asia, could live in areas with potential water scarcity at least one month per year by 2050. One risk related to water scarcity is lower economic growth, with the World Bank estimating that this issue could wipe 6% off GDP by 2050 for some regions, including the Middle East and Africa as it affects health, income and agriculture. Another risk is that climate change could drive increased migration within countries, with a potential 140 million people on the move by 2050, according to the World Bank. The OECD estimates that there needs to be USD 13.6 trillion in water infrastructure investments between 2016 and 2030 to address water scarcity.

Smart cities

Smart cities, steep learning curve

The UN projects that the share of the world’s population living in urban areas will increase to almost 68% by 2050 from 55% currently. This rapid urbanization increases the risk of climate change and traffic congestion in large cities. Heat waves – increasingly a reality due to climate change – are worse in large cities where skyscrapers, cars and paved roads trap the heat. Additionally, mega cities face unique challenges in managing pandemics, as the world has recently experienced.

Cities must therefore become smarter if they want to manage effectively urban growth and the challenges that come with it, including public health. Around the world, city planners and residents use data-driven technologies, such as the Internet of Things (IoT) and artificial intelligence (AI), to improve traffic flows, building design as well as waste and water systems in “smart cities.” Yet there remain many hurdles for smart cities to overcome, including patchy data, funding, data storage and concerns about privacy, according to a blog by Scientific American.



Smart transport and mobility solutions can reduce traffic congestion and improve connectivity. They can also spur economic growth by providing reliable access to cities and creating so-called agglomeration economies. In France, the “Grand Paris Express” rail project will improve connections between the suburbs and developing neighborhoods in Paris and the city’s business districts, research centers and airports by 2035. For example, it will take just 15 minutes – instead of 66 minutes – for a researcher to travel from the Orly airport to the Paris Saclay University Campus, according to the Grand Paris Express website.

Smart water infrastructure focuses on automated pollution and leakage detection in order to minimize the loss of water. The US city of South Bend, Indiana, for example, uses IoT sensors in the sewer system to monitor water levels and redirect wastewater instead of letting it flow into the river. In Europe, the city of Cascais in Portugal uses underground recycling bins fitted with sensors that monitor waste levels and enable drivers to focus on collection routes where the bins are full, delivering both cost savings and reductions in carbon emissions. Smart buildings use real-time data about occupancy and temperature conditions (e.g. lighting, security and heating) to optimize space and energy consumption. MarketsandMarkets estimates that the annual market for smart building technology will increase to USD 106 billion by 2024 from USD 61 billion in 2019.

Telecom infrastructure

Towering growth

Telecom tower companies offer an attractive growth component within a global infrastructure portfolio. Sustainable growth comes from the acquisition of new tower assets and from an increasing number of tenants per tower.

As telecom towers are not mission-critical assets for mobile network operators (MNO), they sell their tower assets to independent tower companies because it is more economical for an MNO to lease the tower access than to own the tower itself. This trend of MNOs monetizing their tower assets started in the USA, which drove the strong growth of listed US tower companies. The growth potential for European tower companies is huge because there are about 420,000 telecom towers in Europe – three times more than in the USA. However, network operators still own about 80% of these European towers, compared to only 16% in the USA, according to the GLIO.

Accordingly, listed European tower companies could experience the same growth rates going forward as their US peers have registered over the past 15–20 years. Spain’s Cellnex and Italy’s INWIT have led this growth trend in Europe with several tower acquisitions over the past year. In addition, some network operators appear to be considering an initial public offering of their tower businesses to unlock shareholder value. In addition to expanding their portfolio of assets, tower companies can also increase the number of tenants per tower to grow their businesses.

Ones to watch


  • Transport infrastructure operators of airports, toll roads and railways with regulated business models and inflation-indexed cost-plus-pricing formulas, which allow them to raise prices in order to pass rising inflation on to their customers.
  • Utility companies with a growing share of renewables in their generation mix. This energy transition also requires smarter transmission lines (smart grids) and energy storage technology to keep electricity supply reliable when more power comes from renewables.
  • Data-driven technology solution providers that help city planners and residents to manage the infrastructure challenges related to traffic flows, building design as well as waste and water systems in fast-growing urban centers.
  • Companies that provide infrastructure equipment for the roll-out of the new fifth-generation (5G) telecom technology, such as data centers, telephone tower companies and equipment providers for 5G telecom assets.


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