What to Expect When You Are Expecting Inflation, Rising Interest Rates, Recession

This article was produced by Arjun Infrastructure Partners, a member of IPFA. 

Inflation is high, interest rates are rising, and a global recession is increasingly likely. In this macroeconomic environment with elevated risks, core infrastructure will have the opportunity to prove itself: Infrastructure provides inflation-protection, stable cash flows and recession-resilience – only, of course, when it is done right with a core approach.

Infrastructure investments require a long-term approach and focusing too much on annual fluctuations can be misleading. Having said that, the stable cash flow characteristic must be considered in an inflation-adjusted way.

Beyond inflation, a high interest rates and economic slowdown scenario can potentially be more harmful, if the assets are over-levered. Core infrastructure with a prudent leverage strategy should perform well relative to other asset classes – partly for secular reasons such as the increased investor demand for renewables, and partly due to the flight-to-quality to resilient investments.