Amid a complex and volatile economic and market environment, 2022 was a year that reinforced the importance of a well balanced portfolio for infrastructure investors.
The year began on a positive note on the back of brightened prospects for the global economy which, in turn, filtered through to the infrastructure sector. However, this quickly reversed as myriad factors including soaring inflation and a corresponding jump in interest rates bruised sentiment and complicated the outlook.
Despite fast moving market conditions, the Infrastructure Department delivered a resilient performance in 2022. This was aided by its "all weather" diversification across its four core sectors of utilities, energy, transport and digital. Utilities played an important role during 2022 providing stability to the overall portfolio in a volatile economic environment.
The Department also benefited from its flexibility to access the infrastructure market at the most attractive entry points and modes of access, including direct investments, existing platforms, funds, and listed assets. On the latter, the team had opportunistically built exposure to listed assets during the pandemic, and it capitalised on market volatility in 2022 to add further to its public market investments. Key examples included top-up investments in market leaders such as ADP and Getlink.
Energy security was a major theme in 2022. This had profound effects on the global energy supply chain and sparked a wave of new gas-related infrastructure projects. The renewed strategic focus on liquefied natural gas (LNG) proved especially positive for North American energy infrastructure prospects. The Department closed its investment in Sempra Infrastructure Partners in H1 2022, a North American leader in gas infrastructure, which is poised to play a key role in the ongoing evolution of the global energy supply chain.
In parallel to energy security, in 2022 the drive to decarbonise gained momentum, with governments and investors setting more ambitious investment targets in renewables, energy efficiency and electrification.
ADIA continued to build renewables capacity and to diversify into areas such as storage and hydrogen. As of October 2022, ADIA's infrastructure team supported c.22GW of operating renewable energy projects, with a further c.19GW of projects under development.
In transport, the Infrastructure Department established a 50/50 partnership with Global Infrastructure Partners to acquire a controlling stake in VTG, a leading European railcar lessor that plays an essential role in the decarbonisation of European freight transport.
Despite the volatile macroeconomic environment, digital infrastructure continued its relentless progress, as exponential growth in data fueled demand for increased storage capacity and faster transmission. The Infrastructure Department continued to build on its existing exposure to this dynamic sector, particularly in core areas such as data centres and telecom towers.
Looking ahead, investors have become more cautious in response to the upswing in risk free rates after a decade of decline, as well as uncertainty around the future of interest rates. This may contribute to increasing the cost of equity for both current asset valuations and future private transactions. However, the substantial surplus of dry powder may help to temper this cost of equity increase during 2023.
The Department will continue to support the growth of assets in its existing portfolio in 2023 and to selectively pursue listed and unlisted investments with attractive risk return profiles. Given the size and maturity of its portfolio, the Department will once again emphasise larger-scale acquisitions and platforms whose growth it can support over time through additional capital deployments alongside partners.
Through its diversified infrastructure portfolio, ADIA is well positioned to capitalise on key mega-trends that will reshape the global economy in years to come across both mature and emerging markets. These include energy transition, deglobalization and digitalisation trends, as well as demographic shifts. The Infrastructure Department will continue to collaborate with its partners to deepen its knowledge of these themes and identify attractive investment opportunities, while actively monitoring emerging risks.
