Monday Market Minute | Jul 4, 2022

Canadian infrastructure funds outperform as inflation hedges and regulated returns prove their worth

What Moved

As the first half of 2022 ended, Canadian infrastructure funds stood out as one of the best-performing alternatives allocations. Brookfield Infrastructure Partners posted strong results driven by inflation-linked revenue contracts, while mid-market infrastructure funds with exposure to Canadian utilities, toll roads, and energy midstream assets reported stable cash flows despite the broader market turmoil. The asset class's structural inflation protection — through regulated rate bases, contractual escalators, and essential-service demand — delivered exactly as designed.

Why It Matters

For private markets investors navigating the most volatile first half in a generation, infrastructure's performance reinforced a core portfolio construction principle: real assets with contractual inflation protection provide genuine diversification when it matters most. Unlike bonds (which suffered historic losses) or equity (which corrected sharply), infrastructure's regulated and contracted cash flows were largely insulated from the rate cycle's immediate impact.

Signal to Watch

Canadian pension fund infrastructure allocation targets for 2023 — if CPPIB, OTPP, and others increased their targets, it would signal institutional conviction in the asset class's role during inflationary regimes.

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