With two consecutive quarters of strong performance, the unlisted infrastructure asset class is inching closer to its all-time high of 2019, but a higher equity risk premia indicates persistent uncertainty in some sectors.
The infra300® index, which tracks a representative global sample of unlisted infrastructure equity investments worth approximately USD 250bn, rose 4% in Q3 (local currency returns), as the average discount rates remained flat at 8.2% after the increase in interest rates was offset by a drop in the equity risk premia. On a year-on-year basis, the index returned 9.2%, approximately one-third of which can be attributed to the growth in valuations.
At the sector level, the transport sector (TICCS® – IC60) recovered the most and contributed more than half of the broad-market index return. Nevertheless, the airport index remains at its lowest point in more than 5 years. A drop in the valuations of hydroelectric power plants also dampened the returns of the global renewable energy sector (TICCS® – IC70) at 0.4% on the quarter. The wind and solar sectors returned 1.13% on the quarter in local currency. In aggregate, the contracted segment of infrastructure companies (TICCS® – BR10) continued to exhibit a stable performance at 1.5% in local currency for this quarter.
Looking at the corporate governance buckets (TICCS® – CG), both infrastructure projects and corporates saw a small drop in equity risk premia, but the longer duration of infra corporates led to a higher capital appreciation performance over the quarter on a fair market value basis.
Private infrastructure debt saw a small drop in credit spreads but also a rise in the yield curve. The broad market debt index returned 0.3% in Q3. This index includes more than 1,000 senior debt instruments across infrastructure corporates and projects with a market capitalisation of almost USD 250bn. Average credit spreads for all private infra debt now stand at c.140 bp, their lowest level in over 10 years. Yield-to-maturity, on the other hand, remains higher than the pre-pandemic level at c.2.5%.
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