European investors are turning to infrastructure investments, including indirect exposure via equities, amid rising inflation, according to Cerulli.

The latest edition of, The Cerulli Edge – European Monthly Product Trends, using data from Morningstar, reported that infrastructure equity funds in Europe saw their combined assets under management (AUM) rise 10.9 per cent to €29bn in the first six months of 2022.

This contrasts with more traditional fund sectors, such as global large-cap equity or global emerging markets equity, which were down 25 per cent and 17 per cent respectively over the same six-month period. The technology equity sector, by comparison, was down 35.9 per cent in terms of AUM.

Cerulli director, Fabrizio Zumbo, said: “One of the few pockets of the European market to record asset growth during the first half of 2022 has been infrastructure equity funds.”

Infrastructure equity funds are products that invest in listed companies involved in infrastructure. Examples include utilities, highways and rail tracks, airport services, marine ports, oil and gas storage, and transportation.

Cerulli attributes the rise in infrastructure investments to inflation; Euro area annual inflation rose at a record 8.6 per cent in June, up from 8.1 per cent in May. In the UK, inflation hit a 40-year high of 9.4 per cent in June, up from 9.1 per cent the previous month.

The report noted that protection against inflation is currently a key objective for many investors and infrastructure assets have typically provided a hedge against rising prices, especially where companies are able to renegotiate contracts and pass through costs to customers. In addition, infrastructure assets often have an explicit link to inflation via regulation or formal terms and conditions as part of agreed contracts.

Investors are also attracted by the prospect of a longer-term view—commonly associated with infrastructure projects—yielding a steady source of income. This point becomes more pertinent given the recent volatility in the bond market.

Furthermore, there has been strong encouragement at the national level to boost infrastructure investment. The Swiss Federal Office of Transport intends to extend its infrastructure investments in France and Italy, targeting rail lines and terminals. The UK Infrastructure Bank, which launched in June 2021, is building internal capacity to make its own direct equity investments, shifting the onus away from third-party asset managers. Its strategy will focus on clean and renewable energy, in line with the UK’s ambition to reach net zero by 2050.

“Many investors in Europe are likely to seek out infrastructure assets, directly or indirectly, as a means of navigating the current environment of high uncertainty and rising inflation,” Zumbo said. “The intersection of infrastructure and sustainability will also continue to represent a major opportunity as economies globally seek to address the need for greater investment in a greener future.”

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