The U.S. infrastructure market is proving resilient in 2020 notwithstanding Covid-19, with 217 billion dollars of transactions reaching financial close so far.1 Infrastructure investors seem less concerned about the macroeconomic cycle when accessing the market, but the same may not be true when considering a potentially changing policy landscape. The U.S. presidential election may be a pivotal moment for the future strategies of investors in U.S. infrastructure.
Today, the U.S. infrastructure market is one of the largest globally.2 Historically, the energy sector has represented the largest share of capital flow, with most transactions closing in the midstream3, liquefied natural gas, power, utilities and renewables sectors. The municipal-bond market, as a competitive source of funding, has limited the involvement of private capital in transportation and social infrastructure, particularly if compared to other developed markets, such as Europe.
U.S. transportation and social infrastructure currently see a 2 trillion dollar investment gap over the next decade, as low public investment has led to deferred maintenance, with the conditions of U.S. infrastructure being "mostly below standard," according to the American Society of Civil Engineers.4
From a policy perspective, this gap has not remained unnoticed. In recent years, a number of initiatives tried to support infrastructure, removing barriers to private capital. U.S. states have developed Public Private Partnerships (PPPs)5, but projects were limited so far.
In case of a Republican win in the upcoming U.S. presidential election we expect infrastructure investment to be a key area of focus to support economic recovery post Covid-19. However, we would see a gradual evolution of policy, and a more gradual transition to clean energy, led mainly by market forces, rather than policy, as renewables gradually achieve grid parity.
A Democrat win may see a faster transition to clean energy and renewables, such as through the introduction of a carbon tax. As a result, we would expect more investment in grids, battery storage, and a stronger promotion of transport electrification, in an attempt to reduce emissions, and support a nascent low carbon economy.
What seems clear today, is that some megatrends, particularly digitalization, may increasingly support the pipeline of infrastructure investment in the future independently from the election results. Demand for connectivity and data volumes continue to accelerate, supporting the outlook for investment in fiber and datacenters.
Source: Infrastructure Journal database as of 8/27/20
1 Infrastructure Journal database as of 9/18/20
2 Based on Inframation News database of closed infrastructure transactions as of September 2020
3 Midstream is a term used to describe one of the three major stages of oil and gas industry operations. It includes the processing, storing, transporting and marketing of oil, natural gas, and natural gas liquids.
4 ASCE, Infrastructure Report Card 2017
5 It is a cooperative arrangement between two or more public and private sectors, typically of a long-term nature.
This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect.
DWS Investment GmbH as of 9/22/20
CRC 078492 (09/2020)