Our world is changing, and investors need to adapt alongside it. Here’s why Temasek believes core-plus infrastructure is a promising opportunity in a resilient and forward-looking portfolio.
Investing is about striking a balance between long-term objectives while keeping an eye on changes on the horizon. This is especially relevant today, as geopolitical shifts, environmental imperatives, and technological advancements add uncertainty to businesses and economies.
To enhance the resilience of our portfolio, we are investing in core-plus infrastructure. An asset class that can provide resilient risk-adjusted returns, and stable cash yields.
FACT: Infrastructure, as a category, is not new to Temasek. It has been an integral part of our portfolio since our inception. Our TPCs, such as PSA and Sembcorp, operate critical infrastructure in Singapore.
Core-plus infrastructure marries the stability of traditional infrastructure with the opportunities that innovation and technological advances offer. This approach has a distinct appeal. Many institutional portfolios benefit from the stability and economic resilience of infrastructure, which has stood the test of time and has a strong track record of reliable returns. Simultaneously, it allows investors an avenue into the innovative technologies that could increase returns over the long term.
Core-plus infrastructure and Temasek
Temasek has historically had exposure to infrastructure assets through its Portfolio Companies, such as Singapore’s ports and utilities, which remain essential, but there’s also a growing attention and opportunities in the infrastructure underpinning growing sectors such as e-commerce and electric mobility.
As digitisation gets more pervasive and our lives shift increasingly online, infrastructure enabling cloud adoption, AI, data centres and always-on connectivity is becoming as critical as electricity was in the last century.
Temasek is deploying capital to core-plus infrastructure in three focus areas:
Digital Enablers
Increased adoption of AI has accelerated demand for AI data centres and related infrastructure
Energy Transition and Resilience
Rising electrification and data centres have boosted demand for sustainable power
Ageing Infrastructure
Existing infrastructure requires upgrading to drive innovation and economic growth
We allocate our capital to core-plus infrastructure in three main ways: through our Singapore-based Temasek Portfolio Companies (TPCs), partnerships and funds.
First, we work directly through our TPCs, such as Keppel and SP Group, which have deep infrastructure domain expertise.
Second, we work through partnerships with key global investors. For example, we worked with Brookfield to acquire a majority stake in Neoen, and with EQT to establish O2 Power in India.
And third, we invest through funds. Temasek is a partner in Brookfield’s Global Transition Fund and GIP’s flagship Fund V. We also recently joined the AI Infrastructure Partnership established by BlackRock, GIP, Microsoft, and the Middle East’s MGX.
Breaking down core-plus infrastructure
Core-plus infrastructure lives up to its name: it means investing in upgrades and expansions of the fundamental building blocks of our society. Think ports, power grids and data centres – essential foundations on which our lives and businesses depend.
As cities grow and face rising demand and increased need for reliable energy, power grids must become more flexible and adopt smarter operations.
Meanwhile, data centres must multiply or expand their capabilities to meet AI’s growing computational needs. Over time, advances in technology and shifting needs reveal more ways to improve these existing assets.
Core-plus infrastructure projects range in complexity, depending on the geography or level of development of the existing assets. In developed markets, innovative enhancements can unlock additional value, while in emerging markets with existing but underdeveloped facilities, upgrades and modernisation can enhance operations and improve returns.
While these different scenarios may have projects which look markedly different on the surface, at their essence, all core-plus infrastructure projects share the potential to significantly improve asset performance and returns long term.
Rather than bearing the high cost and risks of building new from scratch, investors focus on strengthening what’s already there: boosting efficiency, expanding capacity and making infrastructure more resilient and future-ready.
Advantages of core-plus infrastructure assets
Stability
Core-plus infrastructure assets such as transport hubs, networks and digital infrastructure provide essential services and are often bolstered by long-term contracts, regulatory frameworks and sustained demand. They offer unparalleled stability for investors, even amid market volatility.
Inflation protection
Many infrastructure assets feature revenue models linked to inflation, whether through regulated tariffs or contractual escalation clauses. This provides investors with a natural hedge against rising costs.
Long-term growth opportunities
Beyond stability, Core-plus infrastructure offers opportunities for expansion and enhancement. Assets can be upgraded or scaled in line with technological advances and evolving demand, making them adaptable in line with digitisation, decarbonisation, and sustainability.
We are undoubtedly experiencing a period of global uncertainty. In response, Temasek is holding to its tradition of seeing opportunity where others might see challenge. Alongside opportunities in artificial intelligence and alternative assets, core-plus infrastructure will contribute to our goal of delivering sustainable returns above our risk-adjusted cost of capital.
Through targeted, intentional investments, we will stay committed to doing well, doing right and doing good to ensure that every generation prospers.
