Infra returns ‘too good to last’

A research paper from JP Morgan is anticipating an inflection point for the asset class.

Expect the potential for outsized investment returns in infrastructure to diminish in the near-term, a white paper from JP Morgan Asset Management (JPMAM) surmised.

In Too Good to Last, co-author Mark Wesidorf predicted a 100 basis point “discount rate compression” could develop in the next two-to-three-year period. “You haven’t missed out, yet” said Weisdorf, chief executive of the JP Morgan infrastructure investment group. “This is more of a call to action: invest now”.

The research piece suggested that institutional capital, “frustrated by lackluster growth and dissatisfied with volatility,” will begin migrating to infrastructure. The anticipated inflow into the asset class could push the value of infrastructure “steadily higher”. 

While Weisdorf said the promise of a double-digit return could lessen, he stressed the attractiveness of the asset class will remain. “We would still see 8 percent to 10 percent [returns],” Weisdorf noted.

He said JPMAM, the asset management business of Wall Street firm JP Morgan Chase, began forecasting a possible discount rate compression over a year ago.

“I began here in 2005, and I have been calling for an inflection point since,” Weisdorf said, judging infrastructure as “still relatively new”. He went on to state the “extra gravy would be gone” after the two-to-three-year “early mover” window elapsed.