Market uncertainty and the possibility of inflation becoming less well anchored is encouraging investors to pay more attention to infrastructure assets.
As 2026 neared its mid-year point, concerns about the impact of geopolitical shocks on inflation and growth have lingered despite hopes for a scaling back in the Middle East conflict.
European Central Bank (ECB) research and US Federal Reserve commentary has suggested geopolitical supply shocks could re-anchor inflation expectations higher1. On 29 May, for example, ECB Governing Council member Fabio Panetta warned that oil and gas prices were unlikely to normalise quickly even if the Iran conflict was rapidly resolved2.
Investors, grappling to make sense of the multiple macro cross currents, have been seeking out ways to enhance portfolio resilience and diversification while also targeting evolving upside opportunities.
To this end, asset classes that have shifted more into favour include infrastructure and real assets. The chart below, for example, shows a significant uptick in cross-border net flows into European open-ended infrastructure funds, in euro terms, in the first half of 2026.
Inflows into listed infrastructure assets are parallelled in private markets too. According to the 2025 IFM Investors Private Markets 700 annual survey, allocations are trending upwards as investors become increasingly confident about the potential returns of infrastructure equity and infrastructure debt3. Based on the responses of 714 senior investment professionals, the number of institutional investors planning to allocate capital to infrastructure equity and debt is projected to grow from 50% to 60% by 2030; key reasons being risk management and return enhancement. Survey respondents said they expected the potential returns of infrastructure equity and infrastructure debt respectively will outstrip those offered by private equity and private debt, with average net returns expected from private infrastructure equity and private infrastructure debt standing at 13.4% and 9.59% respectively.
According to several BNY thought leaders, this shift can be understood against the backdrop of a move to a new, as yet undefined, economic order in which periods of volatility, supply-side shocks and heightened macroeconomic uncertainty likely become more frequent; one in which investors will need to focus more on active, targeted return seeking (i.e., less on broad-based beta exposures that benefited from artificially easy monetary conditions) as well as effective portfolio diversification and downside protection.
An additional appeal to investing in infrastructure assets is the massive, long-term demand for infrastructure projects globally. Demand has escalated due to secular trends like:
- Energy security and decarbonisation. Geopolitical shifts and ambitious net-zero targets have accelerated the need for capital deployment in renewable power generation, grid expansion and energy storage.
- Digitalisation and AI. The explosive growth in artificial intelligence, cloud computing and data sovereignty has created an urgent, massive demand for real-world digital infrastructure, such as fibre networks and data centres.
According to management consulting firm McKinsey & Company, the world requires an estimated US$106 trillion in infrastructure investment by 2040 to meet the demands of global population growth and to enable parabolic technological advancement4.
Various governments are seeking to address this challenge. For example, the UK introduced the Planning and Infrastructure Act 2025 in December last year, a landmark piece of legislation designed to expedite the construction of new homes, improve transport links and support clean energy projects. In March 2026, the National Infrastructure and Service Transformation Authority put the value of the UK’s infrastructure project pipeline over the next decade at £718 billion5.
Clearly, infrastructure has much to offer investors worried about geopolitical uncertainty and macroeconomic volatility, and who are looking for inflation protection, resilient diversification options and dependable investment returns.
Infrastructure works as an inflation hedge because infrastructure revenues are frequently tied to long-term contracts or regulated frameworks with built-in inflation pass-through mechanisms, helping protect real returns during periods of price volatility. Infrastructure’s risk/return performance during the inflation spike over the April 2021–June 2023 period, when year-over-year CPI was over 4%, lends weight to this view.
Infrastructure can also deliver resilient, defensive returns. This is because infrastructure assets like toll roads, utilities and energy grids – as essential services – provide steady, predictable demand across all economic cycles.
Admittedly, inflation and growth-related concerns in markets will likely abate somewhat following signs of an easing in the Middle East conflict. However, there remains a case for having some exposure to asset classes that can aid portfolio resilience beyond what a traditional 60/40 portfolio offers.
1A European Central Bank research post has warned that consumer expectations following the Iran war point to renewed stagflation concerns, although the reaction has so far been less severe than that which followed Russia’s invasion of Ukraine in 2022. See ECB blog, 29 May 2026, “Geopolitical risk and scarring effects on consumer expectations: insights from the wars in Ukraine and Iran” https://www.ecb.europa.eu/press/blog/date/2026/html/ecb.blog20260529~fdd1d1e8a3.en.html
Meanwhile, Federal Reserve Bank of St. Louis President Alberto Musalem has stated that policymakers should not rely on a potential AI-driven productivity boom to reduce the currently elevated US inflation, which remains significantly above the 2% target. Source: Bloomberg. https://www.bloomberg.com/news/articles/2026-05-28/fed-s-musalem-says-officials-can-t-rely-on-ai-to-fix-inflation?srnd=homepage-europe
2 Source: Reuters, 29 May 2026. https://www.msn.com/en-gb/money/other/ecb-will-act-to-head-off-persistent-inflation-panetta-says/ar-AA24lmB2?ocid=BingNewsSerp. In June, the ECB raised its key interest rate to 2.25% to combat inflation – its first tightening move since 2023.
3IFM Investors’ Private Markets 700 Report, 2025. The report provides a window into how institutional investors around the world view and approach private markets.
4McKinsey & Company, Global Private Markets Report, March 2026, “Infrastructure: Investing to support global growth”.
5Source: National Infrastructure and Service Transformation Authority (NISTA) press release “Infrastructure Pipeline update signals future workforce needs” dated 9 March 2026. NISTA is a public agency set up in 2025 to advise the UK Government on infrastructure delivery and improvement.
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