Market
Memos from Howard Marks: Nobody Knows (Yet Again)With volatility on the rise this year, infrastructure is increasingly in focus, as investors seek the stability it can provide as an investment. As an asset class, infrastructure has a number of desirable characteristics provided by the underlying investments it targets. For example, infrastructure delivers essential services, such as transportation or power, that are necessary for daily life and economic activity. It also requires large capital investments, which give it high barriers to entry from competitors. Additionally, infrastructure projects are generally contracted and generate free cash flow, which helps maximize investor value through regularly scheduled income distributions and through the funding of accretive capital expenditures.
What History Reveals
It should come as no surprise, therefore, that private infrastructure has historically performed well during difficult market environments. Consider, for example, the figure below which illustrates the highest and lowest returns of a range of asset classes and investment strategies over a five-year period since 2004. In strong markets, private infrastructure tends to deliver solid absolute returns, though not always the highest compared to other asset classes. But in challenging market environments, it has historically outperformed most other asset classes by a wide margin.
In other words, over no five-year period since the reference index’s inception has private infrastructure lost money. In short, infrastructure may potentially provide upside in addition to risk mitigation benefits. Hence, we believe that the historical performance characteristics of the asset class may be important to consider when evaluating options for long-term portfolio construction.
Past performance does not guarantee future results. Indexes are unmanaged, and performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. There may be material factors relevant to any such comparison, such as differences in volatility and also regulatory and legal restrictions between the indexes shown. Five-year periods beginning December 31, 2004 through September 30, 2024. Private Infrastructure represented by Cambridge Associates Infrastructure Index; Private Real Estate by Cambridge Associates Real Estate Index; Equities by MSCI World Index; Private Natural Resources by Cambridge Associates Natural Resources Index; Private Energy by Cambridge Associates Private Equity Energy Index; and Leveraged Loans by S&P UBS Leveraged Loan Index.
Source: Cambridge Associates, Bloomberg, as of Apri 30, 2025.
Private infrastructure has also outperformed public market equities from a risk/reward perspective, and offered consistency of returns. It has provided attractive total returns with a fraction of the volatility (see below). Private infrastructure has posted a 10-year annualized return of 10.4% with a Sharpe ratio of 1.91 (as a reminder, Sharpe ratios are a measure of excess return for the risk taken, with a Sharpe ratio greater than 1 indicating an investment should provide a good level of return relative to its volatility). In contrast, global equities posted a 10.7% return over the same period with a significantly lower Sharpe ratio of 0.57.
Past performance does not guarantee future results. Indexes are unmanaged, and performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. There may be material factors relevant to any such comparison, such as differences in volatility and also regulatory and legal restrictions between the indexes shown.
Source: Prequin, Bloomberg, as of September 30, 2024.
Private Infrastructure: Stability, Upside, and Strong Risk-Adjusted Performance
- Outperformed public market equities from a risk/reward perspective
- Delivered consistent, attractive total returns
- Achieved upside with a fraction of the volatility
We believe that evergreen infrastructure funds with no set termination date may provide an excellent potential intersection of risk and return. These structures are typically easier to access than privately offered structures but yet are often overlooked due to occasional lower performance in any given individual year. Nonetheless, evergreen infrastructure funds have historically delivered consistent returns.
Summing Up
Infrastructure investments provide highly contracted and regulated revenues that deliver fixed income-like cash flows, inflation protection and upside from the participation in economic growth. This makes the asset class an appealing investment choice in all market conditions. In today’s market environment, portfolios can be enhanced by the value of what infrastructure seeks to provide: risk mitigation, attractive total returns, low volatility and the potential for additional alpha through selection of a sophisticated manager who can construct a diversified portfolio of stable, cash-flowing assets.
Read more in our Alts Quarterly Q2 2025.
A WORD ABOUT RISK
As an asset class, private credit comprises a large variety of different debt instruments. While each has its own risk and return profile, private credit assets generally have increased risk of default, due to their typical opportunistic focus on companies with limited funding options, in comparison with their public equivalents.
Because private credit usually involves lending to below-investment-grade or non-rated issuers, yield on private credit assets is increased in return for taking on increased risk.
Investments in real estate-related instruments may be affected by economic, legal or environmental factors that affect property values, rents or occupancies of real estate. Infrastructure companies may be subject to a variety of factors that may adversely affect their business, including high interest costs, high leverage, regulation costs, economic slowdown, surplus capacity, increased competition, lack of fuel availability and energy conservation policies.
Alternative investments often are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment. High-yield bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally, the longer a bond’s maturity, the more sensitive it is to this risk. Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision.
The information in this publication is not and is not intended as investment advice, an indication of trading intent or holdings, or prediction of investment performance. Diversification does not guarantee a profit or protect against loss. Views and information expressed herein are subject to change at any time. Brookfield disclaims any responsibility to update such views and/or information. This information is deemed to be from reliable sources; however, Brookfield does not warrant its completeness or accuracy.
Opinions expressed herein are current opinions of Brookfield, including its subsidiaries and affiliates, and are subject to change without notice. Brookfield, including its subsidiaries and affiliates, assumes no responsibility to update such information or to notify clients of any changes. Any outlooks, forecasts or portfolio weightings presented herein are as of the date appearing on this material only and are also subject to change without notice. Past performance is not indicative of future performance, and the value of investments and the income derived from those investments can fluctuate.
FORWARD-LOOKING STATEMENTS
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The information provided herein reflects Brookfield’s perspectives and beliefs as of the date of this commentary.
INDEX PROVIDER DISCLAIMER
The quoted indexes within this publication are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. There may be material factors relevant to any such comparison, such as differences in volatility and also regulatory and legal restrictions between the indexes shown and any investment in a Brookfield strategy, composite or fund.
Brookfield obtained all index data from third-party index sponsors and believes the data to be accurate; however, Brookfield makes no representation regarding its accuracy. Indexes are unmanaged and cannot be purchased directly by investors. Brookfield does not own or participate in the construction or day-to-day management of the indexes referenced in this document. The index information provided is for your information only and does not imply or predict that a Brookfield product will achieve similar results. This information is subject to change without notice. The indexes referenced in this document do not reflect any fees, expenses, sales charges or taxes. It is not possible to invest directly in an index. The index sponsors permit use of their indexes and related data on an “as is” basis, make no warranties regarding the same, do not guarantee the suitability, quality, accuracy, timeliness and/or completeness of their index or any data included in, related to or derived therefrom, and assume no liability in connection with the use of the foregoing. The index sponsors have no liability for any direct, indirect, special, incidental, punitive, consequential or other damages (including loss of profits). The index sponsors do not sponsor, endorse or recommend Brookfield or any of its products or services. Unless otherwise noted, all indexes are total-return indexes.
INDEX DEFINITIONS
Cliffwater Direct Lending Index (CDLI) seeks to measure the unlevered, gross-of-fee performance of U.S. middle-market corporate loans, as represented by the asset-weighted performance of the underlying assets of business development companies (BDCs), including both exchange-traded and unlisted BDCs, subject
to certain eligibility requirements.
EURO STOXX 50 Index, Europe’s leading blue-chip index for the eurozone, provides a blue-chip representation of super sector leaders in the region.
FTSE Global Core Infrastructure 50/50 Index gives participants an industry-defined interpretation of infrastructure and adjusts the exposure to certain infrastructure subsectors. The constituent weights are adjusted as part of the semi-annual review according to three broad industry sectors: 50% Utilities; 30% Transportation, including capping of 7.5% for railroads/railways; and a 20% mix of other sectors including pipelines, satellites and telecommunication towers. Company weights within each group are adjusted in proportion to their investable market capitalization.
ICE BofA U.S. High Yield Index tracks the performance of U.S.-dollar-denominated below-investment-grade corporate debt publicly issued in the U.S. domestic market.
The ICE BofA Merrill Lynch Global High Yield European Issuers Non-Financial 3% Constrained Ex Russia Index is a sub-index that contains all securities in the broader index except those from financial issuers or with Russia as their country of risk but caps issuer exposure at 3%. The index is rebalanced monthly. The index is USD hedged.
Morningstar LSTA U.S. Leveraged Loan Index is a market-value-weighted index designed to measure the performance of the U.S. leveraged loan market.
MSCI World Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets.
Nasdaq Index is a market-cap-weighted index tracking companies traded on the Nasdaq stock market. Preqin Infrastructure Index captures in an index the return earned by investors on average in their private infrastructure portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.
Preqin Private Equity Index captures in an index the return earned by investors on average in their private equity portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.
Preqin Real Estate Index captures in an index the return earned by investors on average in their private real estate portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.
S&P 500 Index is a market-cap-weighted equity index of 500 widely held, large-capitalization U.S. companies.