Buying well is just the first step in creating value

At many infrastructure assets and businesses, buying well is only the start of the journey. Value can be created throughout the ownership phase through asset de-risking, growth initiatives, and operational optimization, shaping long-term outcomes.

That reality is often overlooked. Returns observed historically in the infrastructure asset class have tended to be relatively stable given the characteristics sector. Within the range of outcomes, active asset management can, subject to asset‑ and market‑specific factors, help position outcomes toward the upper end.

For Canadian pension plans, infrastructure is often seen as a stable, income-generating asset class. But for investors with an active ownership role, the focus extends beyond stability to long‑term stewardship and ongoing engagement.

At IFM Investors, a global infrastructure manager owned by pension funds, that distinction shapes how assets are approached. The firm invests on behalf of long-term institutional clients, with a model that emphasizes governance, active oversight and the ability to influence outcomes over extended periods.

With three decades of experience in infrastructure investing, IFM has seen how value creation increasingly depends on what happens after acquisition, how assets are governed, and capital is reinvested and adapted over time.

Ken Luce, who leads IFM Investors’ infrastructure business in North America, highlights it is not a set it and forget it allocation.

“It’s an asset class where active management can make a meaningful difference,” Luce says, adding that the distinction becomes clearer when looking at how value is created. While exposure to essential assets with predictable demand can contribute to outcomes, it is the range of ownership‑phase actions taken at infrastructure assets that shape value over time.

The discipline of buying well and building value

Control positions and board-level governance create the ability to influence how assets change over time, from capital allocation decisions to long-term strategic direction. That influence, Luce argues, is where the opportunity for differentiated outcomes emerges.

“In public markets, you might be able to generate 50 to 100 basis points of added value over a benchmark. In infrastructure, we think it could be three to four times that.”

At IFM, the process is framed around three levers: buying well, managing intensively, and selling opportunistically, redeploying capital when opportunities emerge elsewhere. Over the past decade, each has contributed in roughly equal measure.

The balance matters. Entry price sets the foundation, but it does not determine the outcome. The period of ownership, where capital is deployed and assets are repositioned, is where investors can have the greatest influence.

That is also where reinvestment decisions come into focus.

Infrastructure investors are consistently faced with a choice between distributing cash flows and reinvesting them. In many cases, reinvestment can offer a more controlled path to value creation. Capital is directed into assets where demand patterns and operating characteristics are already understood, rather than being redeployed into new opportunities where pricing and execution risk may be less certain.

This is often tied to identifying growth that is not fully reflected at acquisition.

“We knew that the runway had extra capacity,” Luce says, reflecting on IFM-managed funds’ investment in Manchester Airports Group. MAG, the UK’s largest airports group, operates Manchester, London Stansted and East Midlands airports. It is jointly owned by Manchester City Council and funds managed by IFM, which holds a 35.5 percent stake.

“But if you’re able to buy well, you don’t necessarily ascribe a huge value to that untapped potential,” he adds, particularly when realizing it requires a decade-long terminal transformation program with complex execution.

The objective is not to pay for that growth upfront. It is to seek to acquire it at a discount and determine whether it can be developed efficiently over time.

At Manchester airport, that meant expanding terminal capacity rather than building new runway infrastructure. The economics are not symmetrical. Increasing throughput through existing assets can often be achieved at a fraction of the cost of new build alternatives, provided the capital is deployed with discipline.

Growing alongside the customer

The importance of reinvestment becomes more visible when viewed through the behaviour of an asset’s users.

Across sectors, the ability to grow alongside customers is a defining factor. Where that capacity is constrained, the risk is not simply slower growth, but potential customer loss at renewal. ‘One of the reasons you can lose a data centre customer at renewal is because you cannot grow with them,’ Luce says.

That principle extends across infrastructure. Airports must accommodate airline expansion. Ports must handle increasing volumes. Energy networks must adapt to shifting demand. In each case, the relevance of the asset depends on its ability to evolve.

This creates a different discipline for investors. Infrastructure cannot be managed solely for yield. It must be positioned to remain relevant within the systems it serves.

The private infrastructure market today is estimated at roughly $1.5 trillion. Against that, the capital required for the energy transition alone is orders of magnitude larger. “The energy transition is going to require an estimated 60 to 100 trillion of green infrastructure over the next 25 years,” Luce says.

That buildout spans renewables, grid expansion, low-carbon fuels and carbon capture. It also comes with significant complexity. “The US grid has been described as the most complex machine in the world,” he notes. “It took 100 years to build, and now we’re trying to add around 50 percent capacity in a much shorter timeframe.”

For investors, that introduces a different set of opportunities and constraints. IFM believes infrastructure continues to be defined by its defensive characteristics, but there is an additional layer of value creation that can enhance outcomes for investors. It is increasingly tied to long-cycle growth driven by structural change.

“I think it is a growth story,” Luce says. “And that’s in part driven by major systemic issues like climate change where infrastructure can play a meaningful role.”

For Canadian plan sponsors, many of whom have built substantial infrastructure allocations over the past two decades, that distinction is becoming harder to ignore. The asset class may still anchor portfolios, but outcomes are shaped by decisions that are anything but passive.

This article has been produced in partnership with IFM Investors