Real assets outlook 2020: infrastructure equity

We are entering 2020 with a quietly optimistic outlook. The last couple of years have been marked by macro concerns and geopolitical uncertainty. But as 2019 came to an end, we saw the clouds starting to clear: in UK we are positive that the election result creates a path out of Brexit uncertainty. Investors deal with certainty better than the unknown, irrespective of what that certainty looks like, and with the country’s economy freed from the encumbrance of the Brexit debate, we are optimistic about Britain’s future.

As for the rest of Europe, we expect low levels of economic growth though we have a slightly more optimistic outlook than 2019. Monetary policy will remain relevant, with low rates driving investors to seek yield assets. Hence, the picture is not dissimilar to the current with European investors displaying significant interest and focus on infrastructure and private, unlisted asset classes.

In the United States, we’re seeing a resurgence of activity, both in fundraising and investing. Airport deals coming to the market suggest that long-awaited privatisation opportunities are starting to materialise, while digital infrastructure, inclusive of data centres and fibre, is taking off. Cleaner power generation looks set to remain attractive, as the green energy transition drives the replacement of coal and oil.

We’re also positive about Australia’s economy, where the economic slowdown is ending, lower rates are supportive, and we expect a swing back to growth.

Beyond these major infrastructure markets, there are some interesting plays in Latin America. Emerging markets on the whole have suffered a macro slowdown as a result of trade wars and internal issues. Valuations have declined in line with optimism – which creates opportunities to find bargains. In 2020 we’ll be looking out for transport and communications opportunities in Latin America and Asia.

In terms of deals, 2019 was a strong year for AMP Capital. We made our largest ever equity investment in the United States with our first data centre acquisition. We merged our UK care businesses, establishing a high-quality platform for growth. In 2020, we’ll be dedicating time to our strategy of adding bolt-ons to existing investment platforms, adding scale to our UK healthcare platform and accelerating our Americas fibre expansion with greenfield builds and acquisitions for our fibre asset. 2020 looks buoyant for transactions across the market, and especially in the midmarket space.

Moving on to investment themes, infratech tops our watchlist for 2020, as we believe we are set to see disruption and opportunities through infrastructure innovation. Digital infrastructure has been a standout sector, but in all sectors the infiltration of infratech will create opportunities. Given its monopolistic nature, infrastructure has been fairly insulated from disruption, but now the scale and pace of technological change – encompassing drones, machine learning, data science, facial recognition and other aspects of the tech transition – means infratech will be impacting infrastructure assets across the board.

We’ll be looking for opportunities for our disruptive investment thesis, as we invest in the infrastructure of today and tomorrow. The sands have shifted on how we consider infrastructure; legacy assets have been derisked and their risk/return commoditised. The maturity of assets in the established infrastructure markets leads us to the next major theme for 2020, which could reshape the global asset class: emerging market infrastructure has real potential to move into the mainstream. Utilties and energy assets may provide an opportunity for investors to retrace the experience we had in the OECD, if we see privatisations and implementation of stable regulations to attract private capital in these geographies.