Infrastructure’s substantial share in lower-risk strategies leaves it less vulnerable to a slowdown

Real estate assets under management (AUM) are positioned in higher-risk strategies, making the asset class more vulnerable to economic downturns. As of June 2022, 62% of its AUM comes from value-added and opportunistic funds, compared with just 29% in the case of infrastructure. Infrastructure’s greater 58% share in lower-risk core and core-plus funds, compared with just 20% for real estate, makes it more resilient to any impending economic slowdown.

Infrastructure assets, including toll roads, airports, and utilities, usually have long-term contracts or regulated revenue streams that provide predictable cash flows. These types of assets are usually classified as low-risk, core, or core-plus investments, offering relatively stable returns.

However, over the past ten years, real estate has seen its exposure to higher-risk strategies displaced by growth in core, core-plus, and debt funds, the latter of which rose from 8% of AUM in 2010 to 17% in 2022. Infrastructure has experienced a similar trend, with debt funds growing their share from just 3% to 13% over the same period.

Overall, while recessions will always be relevant, both asset classes exhibit broader risk exposure across all strategies than in 2010, which may reduce the volatility of returns in any ensuing economic turmoil.

Download Trending Data: Private real estate and unlisted infrastructure AUM by primary strategy (2010 – 2022) for a closer look at the data.