With Infrastructure, Higher Inflation Has Its Benefits

Infrastructure investing does not typically make headline news. Historically, it has generally been relatively immune to economic and market swings, while continuing to provide income for investors. That’s exactly why it’s so appealing in volatile markets.

It should come as no surprise, then, that given the current economic uncertainty, sticky inflation, and market volatility, infrastructure investments have shifted into focus as a highly compelling option for investors.

A Higher Inflation Environment

While inflation trended downward earlier this year, it ticked higher in May. Looking ahead, despite encouraging inflation data at the end of 2024 and into earlier this year, we believe there remains a strong probability that inflation stays persistently higher than average as we move further into 2025. Indeed, given the potentially significant increases in tariffs and concerns on the sustainability of long-term government finances, as shown in the chart below, market participants expect inflation to increase throughout the year. We remain, for the foreseeable future, in a low growth, high inflation world.

Against this backdrop, it is important to emphasize infrastructure’s compelling ability to protect against inflation. This protection is achieved through two key benefits of the asset class. First, private infrastructure assets can directly benefit because they typically operate under long-term contracts that include automatic inflation-linked pricing escalators, which mean that their revenue grows when inflation moves higher. Second, private infrastructure can benefit through indirect pricing power. Even without explicit inflation protection, many asset owners are often able to pass through rising costs due to their strong market positions. As a result, infrastructure has historically performed well during periods of above-average inflation (See the chart below), helping increase resilience in one’s portfolio.

In addition, private infrastructure offers advantages over its public market counterparts. Although public infrastructure, REITs and ETFs can offer some inflation-adjusted income, their prices have historically followed broader stock market movements. Historically, higher inflationary periods have generally coincided with lower returns for publicly traded infrastructure investments. The advantage of private infrastructure investments is that their performance is typically tied more directly to actual contracts and cash flows, and therefore it is somewhat more insulated from the public market swings.

Manager Selection Even More Important

Manager selection always matters, but potentially higher inflation requires infrastructure asset managers to have particularly strong asset selection skills and a focus on infrastructure assets with resilient capital structures.

Since infrastructure assets are long-term in nature, selecting a manager for a portfolio with a strong track record is especially important when considering the risks a higher inflation environment brings to light.

Managers should be focused on infrastructure opportunities alongside robust risk management frameworks, disciplined currency and interest rate hedging approaches, and conservative financing structures. By utilizing these strategies, the risk of persistent inflation can be mitigated and can create opportunities to take advantage of inflationary periods.

Summing Up

We believe infrastructure is a compelling investment opportunity due to its long asset life, stable earnings profile, and strong secular growth drivers. The asset class can enhance portfolio diversification through exposure to a different asset class with historically low correlation to traditional stocks and bonds. Because infrastructure assets are essential to the day-to-day functioning of society, the demand for these assets continues despite economic downturns. In our view, the current higher inflation, lower growth environment underscores the strategic importance of infrastructure investments in providing stability and resilience to an investor’s portfolio through economic cycles.

Read more in our Alts Quarterly Q3 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.

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INDEX DEFINITIONS

Bloomberg Global Aggregate Index is a market capitalization-weighted index, comprising globally traded investment grade bonds. The index includes government securities, mortgage backed securities, asset-backed securities and corporate securities to simulate the universe of bonds in the market. The maturities of the bonds in the index are more than one year.

Bloomberg U.S. Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below.

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.

FTSE EPRA Nareit Developed Real Estate Index is an unmanaged market- capitalization-weighted total-return index that consists of publicly traded equity REITs and listed property companies from developed markets.

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.

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.