Private infrastructure investment experienced a slowdown in 2023 due to cautiousness among investors. However, a new report by Boston Consulting Group (BCG) predicts a rebound in the asset class in the years ahead as the world focuses on building and rebuilding. Limited partners plan to invest an additional $600 billion by 2027, indicating a positive outlook for private infrastructure investment.
Although infrastructure deals were down 18% globally last year, the 5-year CAGR was 18% between 2018 and 2022. Fundraising was also slashed in half to $89 billion from the record high of $176 billion in 2022. BCG expects 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 continue playing a significant role in infrastructure investment activity, with 75% of the world’s infrastructure portfolio companies located in North America or Europe.
The three main areas of dominating private investment in infrastructure by deal value are energy and environment, transport and logistics, and digital infrastructure. Energy and environment deals accounted for almost 45% of all private infrastructure deal value, while transport and logistics totaled more than half a billion dollars in the five-year period. Digital infrastructure accounted for around 20% of total deal value.
Investors are increasingly interested in sustainable infrastructure investing. However, BCG’s report emphasizes the need for investors 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 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.