A Bridge Between Population Dynamics and Infrastructure Investment

Bocconi Knowledge publishes a summary of the'Antin IP Associate Professorship in Infrastructure Finance' Lectio Inauguralis, given by Prof. Stefano Gatti on 12 February, 2018


Historically, infrastructure assets have been considered among the safest in the universe of alternative investments. The infrastructure sector is a regulated industry, where high barriers to entry and an often rigid demand have long been factors enabling investors to benefit from stable, long-term cash flows. The ultra-expansionary monetary policy put in place by central banks over the last few years, and the consequent squeezing of returns have renewed the interest of financial markets for this asset class which, in the third quarter of 2017, raised about $17 billion in equity investment.

Investors and asset managers, however, are increasingly attentive to major changes that are going to affect the industry in the coming years. Such megatrends will significantly impact this alternative asset class. One of them is the demographic shock taking place globally. Current changes in global population trends will have a significant impact on the spending in infrastructure: on the one hand, youth (millennials and younger) is growing as a percentage of total population in emerging economies and this spurs infrastructure investment. On the other hand there is the progressive ageing of mature economies (resulting in the so-called silver society) which discourages it.


Coming to millennials, 50% of the world's population is currently less than 30 years old. As for the silver society, it should be remembered that fertility rates are progressively decreasing: in 2050, the population aged 60 or older will reach 2.1 billion people, compared to 900 million in 2015. Moreover, one should bear in mind that in 80% of cases old people suffer from at least one chronic health condition.

These numbers have a clear impact on the infrastructure business. An increase in the percentage of millennials implies that the values and needs of this demographic cohort will become dominant in the years to come. Millennials are more attentive to ESG (Environmental, Social and Governance) issues, and therefore view polluting activities and technologies unfavorably. Numerous market analyses indicate that the development of renewable energy and carbon-neutral means of transportation will be fostered by values that are widely adopted among millennials. The latter are also digital natives, have a strong propensity to research information, and spend more time connected to information networks and social media. Such lifestyle choices affect consumption patterns: millennials are more oriented to sharing, rather than owning, durable goods such as cars or apartments. In addition, the demand for network connectivity and information speed will drive the development of supporting infrastructure, such as fiber-optic networks and telecommunication towers, giving rise to financial opportunities in the sector.

Equally important are the effects on the infrastructure industry caused by an aging population. The increase in the share of public spending devoted to care for the elderly is difficult to sustain due to high levels of public debt, especially in advanced countries. This opens up new investment opportunities both in the welfare and health sectors through Public-Private Partnerships (PPPs), and in construction and real estate, to build housing facilities and retirement homes suitable for a population largely made up of senior citizens. Also, we should not forget that a graying population will require urban areas heavily served by public transportation, and other services supporting the mobility of older people.

As we can see, the traditional approach to infrastructure investment is being questioned by asset managers and investors: new opportunities are emerging, existing segments are destined to be progressively abandoned (the so-called stranded assets), while others will experience transformation or progressive hybridization. Only asset managers with a clear view of the future and a keen eye for unfolding megatrends will be able to give investors attractive and stable financial returns.