As risk-free interest rates climbed in early 2023, the valuation gap widened between buyers and sellers of infrastructure assets, especially in core infrastructure. This resulted in more subdued dealmaking and fundraising activity as many investors were reluctant or unable to fund new commitments without first recycling capital from existing investments.
Against this backdrop, the Infrastructure Department's strong capital position and flexible investment strategy enabled it to capitalise on market dislocations and deploy capital in strategic and opportunistic investments. These were widely dispersed across direct investments, existing platforms, and funds. Meanwhile, the Department’s diversification across utilities, energy, transport, and digital sectors maintained performance stability.
During 2023, the Department chose to crystalise some of its gains in listed infrastructure, redirecting capital to private core infrastructure deals at attractive entry points.
The surge in risk-free interest rates made private debt more attractive on a relative basis. As a result, the Infrastructure Department chose to tactically redeploy capital into private credit, which in turn helped to de-risk and reduce volatility in its portfolio.
Looking ahead, transaction activity appears set to remain subdued while interest rates remain at or near current levels. We would expect dealmaking to pick up once bid-ask spreads narrow, and buyers and sellers adjust to the new interest rate environment.
The Infrastructure Department is well positioned to capitalise on mega-trends that are reshaping the global economy. These include economic development and demographic growth across emerging markets, where it will continue to actively invest in core infrastructure platforms in countries such as Indonesia and India.
As in previous years, the Department remains committed to supporting asset growth within its existing portfolio. It will also continue to seek out new investments, with an emphasis on larger-scale acquisitions and platforms whose growth it can support by deploying capital alongside its partners.
In parallel, the Infrastructure team will continue to explore the full range of opportunities connected to the global energy transition. At the end of 2023, ADIA’s investments supported c.23GW of operating renewable energy projects, with a further c.29GW of projects under construction or development. It is also collaborating closely with partners to deepen its understanding of how energy trends will play out.
Digitalisation is another key theme that is likely to drive the Infrastructure Department’s future growth. A recent acceleration in the adoption of artificial intelligence technologies is likely to lead to meaningful growth in data volumes and new data centre capacity. The Department is actively researching the impact of AI on the broader infrastructure sector, as the technology may materially contribute to the optimisation of both physical and digital assets and lead to the emergence of new investment opportunities.
