Report lauds infrastructure investment amid stagflation

In a research report, Swiss private markets investment firm Partners Group has recommended investing in real assets and companies amid what it describes as a ‘stagflation-type scenario’ in parts of the advanced world.

Given a “stagflation-type environment” in developed markets, a “more differentiated and adapted investment approach” is required today, according to Swiss private markets investment management firm Partners Group in a new report.

And at the heart of that strategy lies real assets. The report recommends “investing in real assets as well as in value companies in ‘tangible’ (real) sectors that offer stable yields and inherent growth opportunities”.

The report points to the “extremely high” global demand for infrastructure assets which, combined with “weak financing capacities” on the part of governments, leaves a funding gap for private capital. Against a backdrop of stagflation, the report recommends “yielding, brownfield infrastructure assets with inflation-linked revenues in Europe, North America and Australia”.

The report identifies a particular opportunity in the energy sector “spurred by the ongoing deregulation and privatisation in Europe and the expansion of gas transmission infrastructure in the USA” as well as the promotion of renewable energy.

However, it’s not only the developed world/brownfield opportunity that the report draws attention to. It also notes that “the rapid transformation of emerging market economies and societies coupled with high GDP growth supports greenfield asset creation strategies in Asia and Latin America”.

Within private equity and real estate, the Partners Group report favours niche strategies. In private equity, it sees “relative value” in mid-sized companies, arguing that prices remain stretched in the large-cap space. In emerging markets, it has a “positive outlook” on family-backed small- and medium-sized businesses with a bias to Latin America, given “attractive valuations” and “growing demand”.

In private real estate, the report highlights direct non-core opportunities in tier 2 and 3 cities, while core investing represents “lower relative value” due to “high price levels” and a “lack of strong fundamentals”. Opportunities are also seen in many emerging markets and the secondary market.

Zug-headquartered Partners Group is a global private markets investment management firm with over €20 billion in investment programmes under management in private equity, private real estate, private infrastructure and private debt.