The market has become more established, with a larger amount of infrastructure assets in the hands of private investors than ever before. Advancing technologies (e.g., renewable energy, fiber optics), changing consumer behavior (e.g., the cloud, Internet of Things, etc.) and evolving revenue models (e.g., video on demand) have spurred new investment opportunities in infrastructure for private investors, including data centers, managed lanes and LNG. In addition, the ongoing global population migration from rural to urban communities is fueling modernization/urbanization trends and increasing pressure on municipal infrastructure around the world.
Looking back over the past decade, several notable developments have fundamentally altered the infrastructure landscape. In the wake of the Global Financial Crisis (which exacerbated longer term public funding imbalances), fiscal pressures caused many governments to further reduce infrastructure spending as a percentage of GDP. At the same time, regulatory capital requirements have increased, causing many banks to curtail their long-term financing activities. Due in part to the financial crisis, many investors began diversifying their portfolios by reducing exposure to traditional stocks and bonds while increasing allocations to alternative investments. Finally, persistently low global interest rates have spurred investors to seek alternative sources of yield with as low a risk profile as possible.
Thus, the current environment is one in which infrastructure projects have become more dependent upon the private sector for funding. Institutional investors and their consultants have embraced infrastructure as a distinct asset class they believe can generate attractive risk-adjusted returns and provide portfolio diversification benefits. Compared to many other asset classes, however, infrastructure is still in its relative infancy.
As shown in Figure 1, the global private infrastructure market has experienced robust growth since 2007.3 However, infrastructure continues to represent a relatively small portion of investors’ portfolios, and we believe there is substantial room for further growth.