Infrastructure investing has taken a transformative turn over the past decade. While the design, building and maintenance of projects was primarily in the hands of all levels of government (depending on the needs of the project), those projects have moved more into the hands of private investors. According to a report by PwC and the Global Infrastructure Investor Association, more than $200 billion has been raised by specialist funds since 2006, with at least the same amount allocated by pension funds and other direct investors.
The report further states that “combined with a strong supply of assets, enhanced by the post-crisis need for governments and major corporates to reduce debt and focus expenditure … $1.7 trillion [has been] invested into infrastructure assets globally since 2010. In the U.K. alone, 56 percent of water assets, all of the U.K.’s major airports, most ports and all passenger rail rolling stock now sit within specialist infrastructure investor vehicles.”
Also, the PEW Charitable Trust’s report on state public pension funds shows that in the United States alone, state and local public retirement systems held $3.8 trillion in assets, with a quarter of that in alternative investments. In other words, the relatively quick evolution of infrastructure investment has taken hold, with many long-term investors looking for stable returns, seeking out more deals, in more locations, in more niche markets.
“It’s still a relatively new asset class,” notes Lars Pace, a principal on the real assets team with Hamilton Lane in Philadelphia. “A lot of the capital has been formed in the years since the financial crisis. Funds have been growing in size every year.”
And that growth is coming from two areas: the need for project capital, but, perhaps more importantly, the level of knowledge of the investment community.
“The market has definitely evolved through increased allocation, more sophistication around what investors are looking to get out of an infrastructure allocation, and the nature of the asset class has continued to segment and be reviewed in different ways, depending on who the investors are, and the risks and returns they are seeking,” explains Ross Israel, head of global infrastructure with QIC.
Given the infrastructure asset class has evolved so quickly in such a short amount of time bodes well for it to continue to evolve and create greater opportunities for growth into the future. The structures of joint ventures, general partnerships and consortiums or clubs, as well as further market segmentation are taking shape, as are greater options for liquidity. And if interest rates remain low for the foreseeable future, infrastructure will remain attractive for investors for many years to come.
Joel Kranc is a freelance writer based in Toronto and head of Kranc Communications.