Achieving Diversification in Unlisted Infrastructure Investment: A Smart Infra Portfolio Construction

This article explores diversification within the infrastructure investment asset class. The focus is on constructing well-diversified portfolios of unlisted infrastructure equity and the strategic asset allocation benefits of including infrastructure in a multi-asset class portfolio. The authors show that, despite common perceptions, simply increasing the number of assets, sectors, and geographies does not efficiently enhance diversification. Instead, achieving a well-diversified portfolio of infrastructure investments is possible with a limited number of bets, as long as the key risk factors found in these investments are used to build the portfolio accordingly. In a multi-asset class portfolio, they demonstrate that, whatever the investor profile and portfolio optimization objective, unlisted infrastructure equity can play a key role in the total portfolio, especially if it can be invested as an asset class, on a well-diversified basis, for example using the <italic>Smart Infra</italic> approach described in this article.