Decarbonisation, digitisation and deglobalisation present strong tailwinds for Local Government Pension Scheme infrastructure investors in 2025, writes the head of LGPS at IFM Investors.
IFM Investors is a sponsor of the LGC Investment Seminar in Carden Park on 27-28 March. See the full programme here. Email Kieran.McDougall@emap.com to join the waiting list to attend.
Phelim Bolger, head of LGPS at IFM Investors
The investment community has entered 2025 with cautious optimism. At IFM Investors, we expect global growth to remain solid, and interest rates to fall further as inflation approaches target in developed markets. At the same time, the outlook is clouded by an unusual degree of uncertainty: over new US policies, geopolitical tensions and conflicts. The recent volatility in long-term bond yields suggests some concerns over their potential impact on inflation and interest rates.
Yet investors in infrastructure are enjoying powerful tailwinds. Decarbonisation, digitisation and deglobalisation are driving a quantum shift in the need for infrastructure investment. Governments alone cannot supply the necessary capital, providing a sizeable opportunity for investors in infrastructure equity and debt.
In the UK, infrastructure is a key pillar of the government’s growth agenda. And despite mixed sentiment in the US, we expect ongoing momentum in the energy transition and falling costs to aid growth in solar and wind power. As countries decarbonise energy and transport, there will also be growing opportunities to invest in charging infrastructure, electricity transmission and connecting renewable projects to the grid.
Decarbonisation should drive debt issuance in sectors linked to the renewables ecosystem, including battery storage. Emerging technologies and alternative fuels will also be seeking debt financing.
Data centres and fibre optic networks should experience further growth and investment interest. Around half of respondents in our recent Private Markets 700 survey expect digital infrastructure to play a key role in the sector’s debt and equity markets in 2025.
Resilience and stability
At the same time, geopolitical rivalries are reshaping global trade and investment flows. Energy and supply chain security have risen up national agendas, boosting capital spending on infrastructure and strategically important technologies.
In portfolios, infrastructure’s attractions are not limited to the potential returns they offer. Infrastructure allocations can offer resilience and stability across economic cycles and market regimes, and a hedge against rising inflation, should a fresh wave of protectionism and trade disputes lead price pressures up again.
Institutional investors are increasingly embracing infrastructure alongside other private market allocations. At IFM Investors, protecting and growing the retirement savings of working people remains our driving ethos. We remain committed to the UK, where we are a large infrastructure investor. Amid powerful tailwinds and in today’s uncertain world, we believe infrastructure offers a powerful portfolio tool both for LGPS and the broader pensions community.
Phelim Bolger, head of LGPS, IFM Investors
IFM Investors is a sponsor of the LGC Investment Seminar in Carden Park on 27-28 March. See the full programme here. Email Kieran.McDougall@emap.com to join the waiting list to attend.