Long-term megatrends combined with a funding gap are creating a «generational opportunity» for private investors within the infrastructure sector, Indosuez Wealth Management said in an op-ed.
In the last decade, assets under management within infrastructure funds have quintupled to over $1.3 trillion, according to Preqin data. This has been driven by various so-called megatrends and the reduced funding capacity of governments.
«Since 2023, the growth outlook for assets has fostered a trend towards consolidation among infrastructure managers, a sign of confidence in the sector,» said an op-ed authored by Matthieu Roumagnac, head of real assets Investments, private markets at Indosuez Wealth Management.
«[T]he fundamentals are attractive to private investors, who see a welcome diversification for their private markets portfolio, alongside their private equity, private debt and real estate allocations.»
Top Megatrends
Roumagnac highlights three major themes that are driving the infrastructure opportunity. Accelerating decarbonization is supporting renewable energy production, measuring equipment and the electrification of transport assets. Digitalization is creating opportunities in roads, fibreoptic networks, telecommunications towers and data centers. Mobility is also benefiting in areas like electric vehicles and vehicle leasing.
«Initially associated with modest returns over particularly long horizons, the infrastructure sector is undergoing an extraordinary transformation, supported by major societal trends around decarbonization, digitalization and mobility,» Roumagnac said. «By targeting service companies focused on these dynamics, infrastructure is reinventing itself to become an asset class in its own right.»
Funding Gap
Due to governments’ reduced capacity, the funding gap in infrastructure is estimated to reach $15 trillion by 2040. This has generated what Roumagnac calls a «generational opportunity» for private investors not just in assets but also infrastructure services companies «which offer a perspective of higher returns in a shorter time frame».
«In the last 10 years or so, the major private markets managers have, one by one, launched their own infrastructure funds applying the proven methods of private equity,» he added. «Instead of the historical low-return core strategies, we favor more sophisticated strategies that offer investment horizons and performance objectives closer to traditional private equity.»
