Global listed infrastructure well positioned in 2025 for inflation-linked cash flows and attractive rates of return

Justin Lannen

With significant potential for geopolitical and economic uncertainty in 2025, defensive essential service assets such as infrastructure are well positioned, according to Justin Lannen, portfolio manager in the global listed infrastructure team at Maple-Brown Abbott.

“Despite the geopolitical turmoil, we remain optimistic about 2025 and believe that the outlook for defensive, essential service assets such as infrastructure remains strong, especially when compared to more economically sensitive asset classes should economic demand weaken.

“The actions of central banks in 2024 was largely driven by the evolving economic outlook across different regions, and in response a rate cutting cycle started. However, we are hesitant about whether central banks will make further material reductions in 2025 due to ongoing economic strength.

“Our long-term assumptions with interest rates remain approximately in line with current market rates. If central banks do make further reductions, any decline in real long-term interest rates would provide relief for the infrastructure sector.

“Lower rates could further support the sector, enhancing its appeal as an investment and contributing to the stability of infrastructure-related assets,” says Mr Lannen.

Inflation looks to be on the decline globally, however Mr Lannen doesn’t expect it to return to pre-COVID levels in 2025 and continues to see value in the embedded inflation pass- through mechanisms within infrastructure regulations and contracts.

“These features provide a degree of protection against inflationary pressures, ensuring that infrastructure remains an attractive asset class in a potentially volatile macroeconomic environment.”

Mr Lannen says the fund continues to favour monopolistic infrastructure assets that are trading at attractive discounts to internal valuations, protected by regulation and strong contracts with inflation linkage and growth being driven by capital expenditure requirements.

“We see substantial organic growth opportunities for global listed infrastructure, predominantly driven by the energy transition but also supported by themes such as water, transport mobility and digitalisation.

“Cell towers remain a large allocation in our fund. We think cell towers are a strategic and forward-looking investment opportunity for 2025. The convergence of technological advancements, surging data consumption, and the sector’s inherently defensive earnings profile, create a strong foundation for future growth. As connectivity becomes ever more integral to modern life, cell towers are well-positioned to capitalise on the expanding demand for communications infrastructure.

“Water utilities are another sector that we are favourable about especially assets in the UK. The close of 2024 brought a significant event for the UK water sector with OFWAT’s regulatory price review and final determination for the 2025-30 period. This regulatory decision marks a significant milestone, offering much-needed clarity for the industry.

“There will be a large increase in capital expenditure over the coming five years to improve the operating and environmental performance of most UK water companies. Allowed sector expenditure (opex and capex) is increasing from £61bn to £104bn over the five-year period to 2030.

“Companies like Severn Trent and United Utilities are well positioned for the upcoming regulatory period,” he says.

Large amounts of capital continue to be invested by infrastructure companies to facilitate mega themes including decarbonisation, digitalisation, water quality and transportation, says Mr Lannen.

“Substantial long-term capital is needed to support investments in the world’s infrastructure networks and to support these mega themes.

“The geopolitical and macroeconomic landscape for 2025 presents much to consider, and stability is unlikely. However, we believe global listed infrastructure is an asset class that investors can find inflation-linked cash flows and attractive rates of return.”