31 / 10 / 22 - 1 minute read
Emerging markets present as an alternative universe for developed markets infrastructure investors, but the investment case is not straightforward. This research brief presents the investment case for real assets in emerging markets, including how to appropriately manage and price the associated risks through the prism of a comprehensive emerging markets investment framework.
Demand for private capital in emerging markets is enormous and growing but fiscally constrained governments with high debt/GDP levels in a rising yield environment will struggle to maintain existing infrastructure, let alone fund new projects. This is worsened by the growing strains of infrastructure needs caused by rapid population growth, urbanisation trends and the rise of the middle class in developing economies.
However, despite this overwhelming need, capital flows to emerging markets infrastructure continue to lag, and the gap between demand and supply has persisted over time. This gap reflects the difficulty in accurately pricing the additional risks of investing in emerging markets infrastructure.
Emerging market infrastructure can bring with it the promise of double digit returns rarely seen for core infrastructure assets since the early days of privatisation. However, emerging markets add an entirely new layer of risks that all need to be appropriately priced over the long term to make these returns accessible.
Where risks can be quantified and appropriate reward is on offer, allocating capital to emerging markets infrastructure offers strong performance as well as the ability to make an impact in the places that need infrastructure the most.
Jane Baseby is responsible for sustainability initiatives including climate change and modern slavery for all investments at PATRIZIA Infrastructure. In 2021, she worked to develop PATRIZIA Infrastructure’s updated sustainability strategy and is currently devising the decarbonisation strategy in line with the Net Zero Asset Managers Initiative. She is also an author of PATRIZIA’s thought leadership research and was awarded Pensions for Purpose Impact Thought Leadership of the year in 2021. She has just completed her Master of Applied Data Analytics at the Australian National University.
Associate Director, Sustainability, Infrastructure
Justin leads the Investment Solutions Group which is responsible for providing strategic advice and building investment strategies for institutional and government clients. Justin’s particular fields of expertise centre around developing and managing investment risk management strategies and developing alternative asset portfolio plans for institutional investors, focusing on liquidity and illiquid asset investment programs. Justin is a Chartered Accountant and a member of the Australian Institute of Company Directors with extensive experience in infrastructure investment, corporate finance and financial modelling together with performance analysis, reporting and alternative asset management. Justin sits on PATRIZIA’s Listed and Unlisted Infrastructure Investment Committees and is member of PATRIZIA Infrastructure’s Valuation Committee.
Managing Director Infrastructure Investment Solutions