Why infrastructure is entering a new era

Staci West (SW): Hi, I’m Staci from FundCalibre, and today I’m joined by Rebecca Sherlock from First Sentier Global Listed Infrastructure. Rebecca, thank you for joining me today.

Rebecca Sherlock (RS): No problem. Thanks for having me.

SW: Now I want to start with just kind of a broad overview of what’s happening in markets today, what’s making infrastructure more relevant or maybe interesting for investors right now?

RS: Yeah, sure. I mean, investors are really turning to infrastructure for its defensive characteristics. So if you think about it, the growth that we have is structural, it’s not cyclical, and we’ve got that reliable income that offers inflation protection. I mean, this isn’t surprising to us, given that the international order, you know, is experiencing some significant upheaval. We’ve got continued deglobalization, we’ve got the normalisation of fiscal deficits, and we’ve got the associated disorder in the global political economy.

When we’re thinking about 2026, we think that the upheaval evolves further, you know, think a less independent federal reserve zombie governments potential for regime changes by force. I mean, we’ve already seen that in Venezuela, and then also just continued inflation, which will be exacerbating the global affordability crisis. So it’s really those defensive characteristics of global listed infrastructure becoming more attractive and arguably more valuable in this type of environment.

And the types of assets that we invest in have high barriers to entry, pricing power, predictable cash flows, and now with governments having a significant amount of debt that doesn’t look like it’s coming down anytime soon, there’s this increased reliance on the private sector to deliver the new infrastructure that society needs.

SW: And this fund currently has meaningful exposure, kind of across the board, you’ve got utilities, transport, rail assets, particularly in the US. So how does this positioning reflect then your outlook for growth and resilience through not just 2026, but also beyond?

RS: Yeah, I mean, despite unexpected modest slowing of global GDP, the earnings growth for global listed infrastructure does look solid. As we go into 2026, you know, our expectation is that ebitda, EPS and DPS will grow at 7%, 6% and 5% respectively. You know, in 2025, we saw some significant earnings upgrades, specifically in our US utilities and renewables, and we anticipate that the earnings revisions that we saw then will not be repeated this year, but they will still remain strong. I mean, we see earnings risk to the upside in sectors such as airports, non-US utilities and renewables, data centres, and freight railroads, and probably some earnings risk to the downside for energy midstream and wireless towers.

From a a valuation perspective, you know, multiples look attractive whether we’re looking at them relative to history, equities, interest rates, and given the risk return outlook for infrastructure business models. And we see risk to the upside for multiples in freight and passenger railroads in non-US utilities and renewables and in airports as well.

SW: So if I just stick with the kind of earnings opportunities for a second, we’re hearing a lot about growing electricity demand. So why is this one, you know, important, but then how does it translate into the earning opportunities that you’ve mentioned there?

RS: Yeah, I mean, what’s happening at the minute is absolutely fascinating. I mean, for the last 15 years, US electricity consumption or not on a weather adjusted basis has been, you know, pretty much flat. So any economic increases have been offset by energy efficiency. You know, today we’re just in this completely different environment driven predominantly by power demand from data centres and AI.

There was a McKinsey report that came out I think halfway through last year, and they’re saying, you know, they estimate data centre demand to consume 600 terawatt hours of power by 2030. You know, that’s around 12% of total US demand. You know, this really is the biggest thing that we’ve seen since air conditioning in the 1960s.

One of the biggest winners for this is US regulated utilities. I mean, the way these companies make up their earnings is that they earn a return on the capital that they invest. So if they’re building more power generating units, if they’re investing more in their network infrastructure, then that provides a higher level of earnings growth.

What we saw for the bulk of last year was on average, you know, what used to be or used to have earnings per share growth of 4% to 6%, that is now around 6% to 8%. You know, as we go into 2026, you know, we believe the data centre power growth that we saw in the US in 2025 will find its way to other markets, you know, think Europe, think Asia Pacific, but probably to a lower extent just given where electricity prices are in Europe first the US and also the, the permitting or regulatory hurdles that we face over there.

SW: And kind of another trend, if you like, in infrastructure has been this M&A activity, it has picked up strongly a across global listed infrastructure. So what is driving this reassurance and how does it create opportunities for investors? For you? For the fund?

RS: Yeah. Look, I think it’s fair to say 2025, you know, it was a strong year for M&A activity in the listed infrastructure space. It kind of came from a few different areas, though. I mean, I think about it from three different factors. So we had industry consolidation, we had private market acquisitions of public market assets, and we also had low cost funding opportunities for listed infrastructure companies.

So in terms of industry consolidation, one of the main announcements that we had in 2025 was West Coast Freight Railroad operator, Union Pacific, announcing a $72 billion takeover of the East Coast railroad operator, Norfolk Southern, you know, that was at a 25% premium to its undisturbed share price. And the aim of this merger is to create the first transcontinental railroad in the US. You know, we think this has a high probability of success just given the current administration for, you know, pro-business and the merger alignment with that kind of America first politics.

In terms of private markets, acquisitions of public market assets during the year. There’s kind of multiple examples that I could give in a few transactions occurred last year, really when there was some selling off of the renewable developers over and certainty around the One Big Beautiful Bill. So a company called Interject, you know, was bought out in that transaction. I mean, ultimately you should think of listed infrastructure assets being scarce and the pool of money that’s chasing after these kind of long duration predictable inflation and cash flows continues to grow.

The third factor that I mentioned was the low cost funding options. So the capital intensive nature of infrastructure does mean that when you know companies are building more capital, or sorry, investing more capital, part of that needs to come from new equity. So, you know, if you think about 30 to 40% of their spend would come from new equity. And what we saw last year was some companies deciding to divest assets or non-core minority shareholdings to fund a portion of that equity check for these expanded capital plans. I mean, an example of that would be American Electric Power. They divested 20% of their electric transmission business to KKR and the Canadian pension Plan PSP investments, that was like 33 times P/E. So it’s really those three factors that I think drove the large amount of M&A that we saw last year.

SW: Aging infrastructure and limited government funding remain long-term challenges globally. So how important are regulatory frameworks in unlocking the private capital? And then where are you seeing the most attractive opportunities?

RS: So most infrastructure assets are, you know, either regulated or contracted assets. The regulatory framework that they operate in therefore determines in most cases their ability to earn a fair return on equity, given the high level of government debt that we’ve seen that is really impeding governments to invest in infrastructure. So there’s this kind of like regulators are really wanting to incentivise companies to invest because otherwise, you know, these assets that are the backbone to society just start not to work. And we’ve really seen a number of instances over the last year with regulatory frameworks getting better. You know, take for example, the UK water companies you know, they had their regulatory reset. They’ve been allowed to earn a fair return on capital, and that’s really to incentivise a higher level of capital investment to ensure that we’re not having things like pollution incidents and sewer overflows, or at least a minimisation of those two things.

If we compare that to, you know, decades before, they weren’t really having significant amounts of earnings growth because the focus was always on just keeping bills low for customers. I think there’s an acknowledgement now that there needs to be more investment in the system itself. We’re also seeing it in certain US states, say Texas as an example, you know, where regulation has changed to ensure that they could earn a return on their investments in a more expedited way. This change has led to a higher level of capital spend, and that is really to support that data centre AI theme that’s going on.

If I take that and look at probably a little bit more broadly, I’d say, you know, the UK, Germany, certain states in the US, like Texas, are definitely getting better. Some of the lifeguards are probably more, you know, Spain, France, Italy, they’re probably a little bit lower down on that list when I think across the board.

SW: And then just finally, I want to just finish with, if you were to summarise the investment case for global listed infrastructure today, what makes this asset class so compelling for investors looking out over the next five to 10 years?

RS: Yeah, I mean, as you get older, it’s important, you know, to protect and grow capital. And listed infrastructure’s characteristics are perfectly placed to help achieve that. You know, earnings growth is supported by long-term structural drivers, making it less sensitive to the broader economic backdrop, predictable cash flows that underpin an attractive dividend yield and contracts or regulation that allow for some level of inflation protection. I think in this crazy world that we’re living in today, there’s a lot to like about infrastructure.

SW: Well, Rebecca, that is perfect. And what a way to wrap it up. So thank you very much for joining me today.

RS: Thanks so much for the opportunity. Take care. See you next time.

SW: And if you’d like to learn more about the First Sentier Global Listed Infrastructure fund, please do visit fund calibre.com