Private investment in infrastructure has been on the rise for the past few years, with a compound annual growth rate (CAGR) of 18% from 2018 to 2023. The sector has shown stable returns, low cyclicality, and high barriers to entry, making it an attractive option for investors. However, the number of infrastructure deals declined by 18% in 2023, and global infrastructure fundraising fell by 50% from a high of $176 billion in 2022 to $89 billion.

Despite the decline in dealmaking and fundraising, the outlook for private infrastructure investment is positive. Limited partners (LPs) plan to increase their commitments to the asset class, with pension funds and private wealth managers leading the way. LPs expect to boost their investments by more than $600 billion by 2027.

Geographically, the majority of private infrastructure investment activity in 2023 occurred in Europe and North America, with almost 75% of the world’s infrastructure portfolio companies located there. The most active areas for deal-making are energy and environment, transport and logistics, and digital infrastructure, with social infrastructure seeing increasing investor interest as well.

To generate returns, investors in infrastructure assets must adopt a refined approach, focusing on operational improvements at portfolio companies. Leading funds will follow a clear playbook, focusing on the full investment cycle, assessing all value creation levers, and instituting performance requirements.

According to Boston Consulting Group’s new report, Infrastructure Strategy 2024: Creating Value Through Operational Excellence, the biggest areas of infrastructure growth for private equity investment will be in energy, transport, and digital sectors.

“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 coauthor 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.”

Private infrastructure investment will be crucial in bridging the massive funding gap and meeting the high demand for renewed infrastructure. While the sector has faced challenges, the outlook for private infrastructure investment is positive, and investors can generate returns by focusing on operational value creation.