Infrastructure Investing: Embracing Complexity in Times of Structural Change

Apollo Chief Economist

After a tumultuous 2022, the US economic outlook for 2023 remains cloudy. Renewed uncertainty about inflation and the Fed means markets will continue to be volatile. With that in mind, we believe that infrastructure can offer key attributes—downside protection, low correlation to markets, potential protection against inflation—for investors deploying capital today.

Key Takeaways

  • After a tumultuous 2022, the US economic outlook for 2023 remains uncertain. Inflation appeared to have peaked at year-end, but continuing strong job growth in January suggests that upside risks to inflation remain. The Fed may need to raise rates more and keep rates higher for longer to get inflation all the way back to its 2% target.
  • This “no landing” scenario is negative for markets because higher rates for longer increase the downside risk for equities and credit. In this environment, we believe a focus on downside protection is paramount. In fact, we have already witnessed a marked shift in investors’ attitude away from a single-minded focus on upside opportunity toward investment strategies that can mitigate market volatility as well.
  • With that in mind, we believe that infrastructure can offer key attributes—lower correlation to the market cycle, potential protection against inflation—that are particularly attractive for investors seeking to deploy capital today.
  • We believe that a nuanced infrastructure investment strategy with a disciplined, price-conscious investing mindset—purchase price matters—is more crucial than ever. We see the middle-market as the most fertile ground for opportunity, especially at a time when the large capitalization space is awash in capital.
  • We believe a flexible investment strategy works well across cycles but performs particularly well during periods of market dislocation. The toolkit is predicated on three primary types of investment: equity buyouts, corporate carve-outs, and structured solutions.

The information herein is provided for educational purposes only and should not be construed as financial or investment advice, nor should any information in this document be relied on when making an investment decision. Opinions and views expressed reflect the current opinions and views of the authors and Apollo Analysts as of the date hereof and are subject to change. Please see the end of this document for important disclosure information.

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