Infrastructure investment is primed for growth, with private investors essential

Last year was challenging for the asset class but the trajectory remains positive.

Investors may have been cautious about investing in infrastructure in 2023, leading to a slowdown in deals and fundraising. But the outlook is rosy.

A new report from Boston Consulting Group calls for a rebound in the asset class in the years ahead as the world focuses on building and rebuilding, with private investors appearing poised to play an essential role.

Infrastructure deals were down 18% globally last year and fundraising was slashed in half to $89 billion from the record high of $176 billion in 2022. But the 5-year CAGR was 18% between 2018 and 2022 and BCG has found that limited partners plan to invest an additional $600 billion by 2027.

“There is a pressing need worldwide for new and revitalized infrastructure, and private investors will have a key role to play,” said Wilhelm Schmundt, BCG managing director and senior partner, global lead for infrastructure investment, and a co-author of the report. “It has been a challenging year, but we expect the outlook for private infrastructure investment to strengthen, driven by an ongoing adjustment of transaction prices and an increasing need to return money to investors in an economic environment where high levels of dry powder await deployment.”

North America is expected to play a continued role in infrastructure investment activity going forward, with 75% of the world’s infrastructure portfolio companies located either here or in Europe.

WHERE THE MONEY’S HEADED

There are three main areas of dominating private investment in infrastructure by deal value:

Energy and environment deals totaled $1.1 trillion from 2018-2023. Led by renewables and energy services, these investments accounted for almost 45% of all private infrastructure deal value with Europe and North America leading by share of assets.
Transport and logistics totaled more than half a trillion dollars in the five year period led by rail, air, and sea, and accounting for almost 20% of total deal value.
Digital infrastructure accounted for around 20% of total deal value with almost $420 billion invested, with North American investments focused on mobile data and end-user services.

There was also growing interest last year in sustainable infrastructure investing.

But BGC’s report says that investors need to ensure operational efficiencies in the firms they choose for their portfolios as costs rise and return potential is squeezed.

The funds that perform well for their investors are those that focus on the full investment cycle, assess all value creation levers, and that have excellent management teams and a systematic value creation framework.

“Infrastructure investing has been put to the test by recent macroeconomic uncertainty, but the path to value creation is clear,” said Alex Wright, BCG managing director and partner, and a coauthor of the report. “Clear levers for value creation are available in most portfolio companies, and having the right capabilities as well as a well-structured and thoughtfully executed plan is key.”