Global Infrastructure

Looking beyond traditional infrastructure asset classes for returns.

When an investor thinks of infrastructure, airports, toll roads, and powerplants traditionally spring to mind. Projects like these have defined infrastructure investing for decades, producing low-yet-reliable yields. However, the landscape and opportunity-set for infrastructure investing are changing.

What the world needed in prior decades is not the same as today. There are new frontiers of infrastructure requiring substantial capital that are creating opportunities with potentially attractive returns.

We identify particularly exciting investment assets in renewables, digital, and social.

Renewable energy

We see renewable energy infrastructure as a huge investment opportunity. While some consider the sector to be overly saturated due to its prominence in media, the sheer magnitude of capital required to facilitate the energy transition means we are still only scratching the surface.

McKinsey estimates that to achieve existing net zero commitments by 2050 will require US$3.5 trillion in capital expenditure each year beyond current levels. Private capital will be crucial to bridging this gap.¹

^{[1] https://www.mckinsey.com/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring}

Case study

North American clean energy company

Here’s an example of a stock company we find appealing in our global listed infrastructure fund:​

​ This largest clean energy utility in the US, operates across 49 American states and 4 Canadian provinces. It stands as a leading provider of wholesale power generation and energy-related services, serving over 11 million residents with clean, reliable, and affordable electricity.

Renowned for its commitment to renewable energy, this company is among the world's largest generators of renewable power. Not only does the company focus on building infrastructure and driving economic growth, but it also prioritises meeting customers' diverse energy needs.​

Source: Confidential manager, Russell Investments. Information as of June 2023. All figures in USD. For illustrative purposes only. Strategies, portfolio allocations and return targets are illustrative and subject to change and to variation in implementation. ​ Return targets are uncertain, not guaranteed and presented gross of Russell Investments fees and expenses.​

Digital

What the world needs now is future-focused infrastructure to support the modern ways we live and work. There is no better example of that than the digital sector.

Digital infrastructure is the backbone of modern communications; it’s the ecosystem of data centres, fibre, mobile towers, and wireless spectrum that together form the internet. The digital realm – only a few years ago still considered a consumer-oriented product – has become an essential cornerstone of the global economy.

Case study

U.S. wireless communications company

Here’s an example of a stock company we find appealing in our global listed infrastructure fund:

Ranked in the Fortune 500 in 2023 by Fortune Magazine, this company aims to make wireless communication possible everywhere by owning and operating wireless towers used for mobile data, 4G and 5G. Their mission is to lead wireless connectivity around the globe, innovate for a mobile future, drive efficiency throughout the industry, and grow their assets and capabilities to meet customer needs.

Source: Russell Investments. For illustrative purposes only. Information as of December 2023, all figures in USD. EBITA = Earnings before interest, taxes, and amortization (EBITA) is a measure of company profitability used by investors. Strategies, portfolio allocations and return targets are illustrative and subject to change and to variation in implementation. Return targets are uncertain, not guaranteed and presented gross of Russell Investments fees and expenses. ​

Social

The world of infrastructure investing is changing, and while new, emerging sectors have grabbed the limelight, existing sectors that are evolving also present a meaningful investment opportunity.

This is the case with social infrastructure, where community institutions - municipalities, universities, schools, and hospitals - are increasingly looking to private capital as a funding source for building new facilities and making improvements to existing ones.

Case study

U.S. university campus upgrades

Here's a promising social investment theme we're keen on: an energy efficiency solution for a private research university in Massachusetts aiming to fulfil its net zero commitments.

The university sought to reduce its carbon footprint by making its campus buildings more energy efficient. To achieve this, it collaborated with an energy-as-a-service provider who implemented upgrades such as new windows, LED lighting, improved HVAC systems, and microgrids, all under a long-term contract.

These microgrids, comprising small renewable energy plants, supply specific facilities across a 95-acre campus encompassing 72 buildings.

This investment boasts a projected Internal Rate of Return (IRR) ranging from 10% to 12%, along with delivering an energy efficiency enhancement to a critical asset, an outcome which we think other institutions will be eager to replicate.

Source: Confidential manager, Russell Investments. For illustrative purposes only. Information as of June 2023. *The Internal Rate of Return (IRR) is the annual rate of growth that an investment is expected to generate. It is a financial metric, used to measure the profitability of an investment, that takes into account the time value of money. IRR can overestimate the potential returns of a project or future investment by making the Net Present Value (NPV) equal to zero. The scenarios presented are an estimate of future performance based on evidence from the past on how the value of this investment varies, and/or current market conditions and are not an exact indicator. What you will get will vary depending on how the market performs and how long you keep the investment/product.

Conclusion

The frontiers of renewable, digital, and social infrastructure represent innovative, high-growth opportunities for infrastructure investors. But beyond the compelling trajectories of each segment, investing across this trifecta unlocks an additional strategic advantage - diversification.

With their growth drivers largely uncorrelated, a balanced portfolio can be nimble and resilient. If structural shifts undermine one segment's momentum, the others can preserve performance. Those who capitalise on this diverse opportunity set can secure attractive returns while future-proofing their infrastructure allocations.

The time to embrace this multi-faceted revolution across renewables, digital, and social infrastructure is now - reap the rewards of an evolving asset class while benefiting from the power of diversification.