'Infrastructure is considered to be a defensive investment strategy protecting against inflation and capital market volatility through stable long-term cashflows. It has been promising to provide downside protection in the form of inflation protection, stable cashflows and recession resilience' An interesting article as the Infrastructure asset class is once again tested against a volatile market backdrop and macro-environment. Fund raising has continued at pace in the second half of 2022, however with much more caution from investors. Core funds are in strong demand amongst most but return targets will need to live up to expectations to appease LPs.
Inflation is back after 40 years and the Great Moderation, at least for this year, has ended. What comes next will mostly be determined by central bank responses to inflation. The outcome is likely to be somewhere between two scenarios. Disinflation starts in the second half of 2022; central banks declare victory, keep interest rates low, and may even consider taking back some of the recent increases; Inflation stays above 8% annual rate for the rest of the year; central banks keep raising rates – moderately at the start, harshly when their patience runs out. The disinflation scenario is the consensus forecast as of now, especially with the hope that July inflation readings may be the start of a decline in inflation. The high inflation scenario implies high interest rates and a recession.