Skip to main content
Light pgim logodark pgim logo
  • About us
  • Solutions
  • Insights
  • Leadership
Direct Infrastructure Equity Return Attribution & Inflation Resilience
Research

Direct Infrastructure Equity: Performance, Return Attribution, & Inflation ResilienceDirectInfrastructureEquity:Performance,ReturnAttribution,&InflationResilience

By Aili Chen & Junying Shen — Apr 14, 2025

Share
  • Mail
  • LinkedIn
  • Twitter
  • Copy URL
  • Print
Download research

Share

Institutional investors are allocating more capital and resources to unlisted infrastructure investments for their purported stable and high income returns, relatively low correlation with other asset classes, and suitability for hedging long-duration liabilities. These characteristics, along with investor attention to their nation’s welfare, evolving regulatory requirements, and ongoing trends in the energy transition, have amplified the appeal of such investments.

Using an asset-level infrastructure dataset, we extend our previous study in infrastructure performance, valuation and return attribution. We define the various components of infrastructure asset returns, distinguishing between price and income returns. We further examine how underlying drivers, e.g., sales growth, valuation multiple expansion/contraction, drive infrastructure price returns, and then compare how these drivers affect public markets. We also evaluate how infrastructure assets respond to macroeconomic factors (e.g., inflation) and correlate with broader public market returns. Lastly, we discuss the pros and cons of an asset pricing methodology used for calculating infrastructure index returns. 

Due to the different approach between PMA and EDHECinfra in total return decomposition, there is a difference in return attribution – sometimes a substantial difference – even though the total returns are the same. From 2007 to 2022, our income return component is 7.0%/y, with price return contributing 7.2%/y. In contrast, EDHECinfra produces a much higher income return component of 9.4%/y and a lower price return of 4.8%/y.

Recent inflationary pressures have ignited interest in infrastructure as a potential inflation hedge. But what is the empirical evidence for this potential? From Q4 2019 to Q3 2024, did infrastructure equity perform better during higher (CPI ≥ 4%) vs. lower (CPI < 4%) inflation periods? We found that infrastructure equity performance varied noticeably across inflation regimes. Certain sectors, such as Network Utilities and Transport, exhibited some of the most pronounced differences, with their quarterly returns increasing by more than a percentage point in higher-inflation vs. lower-inflation environments. In addition, infrastructure equity performed better than stocks (MSCI ACWI) and bonds (Bloomberg Global Aggregate), on average, during periods of higher inflation.

Total Return Attribution Comparison

(2007 to 2022, Gross of Mgmt. Cost)

Source: PGIM IAS, EDHECinfra.  For illustrative purposes only.

Average Quarterly Total Return

(EDHEC Infrastructure Indices, Lower-Inflation Regime (CPI < 4%) vs. Higher-Inflation Regime (CPI >= 4%))

Note: Lower- (Higher-) inflation is defined US CPI year-over-year growth rate under (over) 4%. Source: PGIM Multi-Asset Solutions, EDHECinfra, Datastream. Provided for illustrative purposes only. Please see Notice for important disclosures.

Five key takeaways for CIOs, asset allocators, and risk managers: 

  • High infrastructure equity income returns (and low price returns) – relative to public equity markets – have confounded investors.  We review and clarify what "income return" means for an infrastructure equity asset.
  • Using an asset-level dataset, we break down infrastructure returns into income and price components, and find that infrastructure equity assets have, indeed, provided higher income returns (around 4-5%/y, net of costs) compared to public equity. 
  • Infrastructure investments do carry significant asset-selection (i.e., idiosyncratic) risk which might be effectively diversified with 10 or more equity assets. 
  • Measuring price returns is challenging due to limited data.  Bayesian techniques can help estimate periodic valuations and returns, but need careful interpretation.
  • Infrastructure has historically outperformed stocks and bonds during inflationary periods, supporting its role as a potential inflation hedge.
Download research
Learn More
Portfolio Research

The Portfolio Research team conducts proprietary research, helping investors navigate asset allocation, portfolio construction, and evolving market landscapes.

Learn More

  • By Aili ChenVice President, PGIM Multi-Asset Solutions
  • By Junying ShenPrincipal, PGIM Multi-Asset Solutions
    • About us
    • Insights
    • Leadership
Light pgim logo
  • Terms & Conditions
  • Privacy Center
  • Accessibility Help
  • UK Regulatory Disclosures
  • Netherlands Regulatory Disclosures
  • Cookie Preference Center

For Professional Investors only.* All investments involve risk, including the possible loss of capital.

This material is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect of any products or services to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. PGIM is the principal asset management business of Prudential Financial, Inc. and a trading name of PGIM, Inc. and its global subsidiaries. PGIM Multi-Asset Solutions LLC (“PMA”) and is part of PGIM, the global investment management business of Prudential Financial, Inc. (“PFI”).  Both PMA and PGIM Inc are registered investment adviser with the US Securities and Exchange Commission (“SEC”). Registration with the SEC does not imply a certain level of skill or training.

The information on this website is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. In making the information available on this website, PGIM, Inc. and its affiliates are not acting as your fiduciary.    

In the United Kingdom this information may be issued by PGIM, Inc., PGIM Private Alternatives (UK) Limited, PGIM Limited or PGIM Private Capital Limited, on behalf of PGIM Private Capital (Ireland) Limited.  In the European Economic Area (“EEA”), this information may be issued by PGIM Private Capital (Ireland) Limited or PGIM Luxembourg S.A., acting through its Netherlands Branch, or PGIM Real Estate Germany AG, on behalf of PGIM Private Capital (Ireland) Limited. In certain EEA countries, this information, where permitted, may be issued by either PGIM Private Alternatives (UK) Limited or PGIM Limited, on behalf of PGIM Private Capital (Ireland) Limited, in reliance of provisions, exemptions, or licenses available to either PGIM Private Alternatives (UK) Limited or PGIM Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union.

PGIM, Inc. has its headquarters at 655 Broad Street, Newark, NJ 07102. PGIM Private Capital (Ireland) Limited has its registered office at IDA Business Park, Letterkenny, Co. Donegal, F92 FP83, Ireland. PGIM Private Capital (Ireland) Limited is authorised and regulated by the Central Bank of Ireland and registered in Ireland under company number 635793 operating on the basis of a European passport. PGIM Limited and PGIM Private Alternatives (UK) Limited have their registered offices at Grand Buildings, 1-3 Strand, Trafalgar Square, London WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number: 193418). PGIM Private Alternatives (UK) Limited is authorised and regulated by the FCA of the United Kingdom (Firm Reference Number: 181389). PGIM Private Capital Limited has its registered address at 1 London Bridge, London SE1 9BG and is authorised and regulated by the FCA of the United Kingdom (Firm Reference Number: 172071). PGIM Luxembourg S.A., Netherlands Branch is registered with the Netherlands Chamber of Commerce under number 85998877 and has its local offices at Gustav Mahlerlaan 1212, 1088LA Amsterdam, The Netherlands. PGIM Luxembourg S.A. has its registered address at 2 Boulevard de la Foire, L-1528 Luxembourg and is authorised and regulated by the Commission de Surveillance du Secteur Financier (“CSSF”) in Luxembourg (registration number A00001218). PGIM Real Estate Germany AG has its registered address at Wittelsbacher Platz 1, 80333 Munchen, Germany and is authorised and regulated by Bundesanstalt für Finanzdienstleistungsaufsicht (“BaFin”) in Germany (registration number 10138142).

In Japan, information is provided by PGIM Japan Co., Ltd. (“PGIM Japan”) and/or PGIM Real Estate (Japan) Ltd. (“PGIMREJ”).  PGIM Japan, a registered Financial Instruments Business Operator with the Financial Services Agency of Japan offers various investment management services in Japan.  PGIMREJ is a Japanese real estate asset manager that is registered with the Kanto Local Finance Bureau of Japan.

In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commission in Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 of the Securities and Futures Ordinance (Cap. 571). In Singapore, information is issued by PGIM (Singapore) Pte. Ltd. (“PGIM Singapore”), a regulated entity with the Monetary Authority of Singapore under a Capital Markets Services License to conduct fund management and an exempt financial adviser. This material is issued by PGIM Singapore for the general information of “institutional investors” pursuant to Section 304 of the Securities and Futures Act 2001 of Singapore (the “SFA”) and “accredited investors” and other relevant persons in accordance with the conditions specified in Section 305 of the SFA. In South Korea, information is issued by PGIM, Inc., which is licensed to provide discretionary investment management services directly to South Korean qualified institutional investors on a cross-border basis.   

Prudential Financial, Inc. (“PFI”) of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom.

*pgim.com/podcasts and its content is intended for informational or educational purposes only and is not directed exclusively to Professional Investors. 

You are viewing this page in preview mode.

Edit Page