Bridging the funding gap: the role of private capital in infrastructure funding

Infrastructure is the literal backbone of Europe’s economies and societies, and investing in it catalyses growth, prosperity and supports economic competitiveness.

The G20 Global Infrastructure Hub initiative estimates that the world faces a US$15 trillion shortfall by 2040 between projected investment and the capital required to provide essential infrastructure for all. This massive funding gap cannot be met by the public sector alone. It will also require a major effort and commitment from the private sector. Because of its experience in infrastructure investment, private capital is ideally placed to help bridge this gap.

Driven by governments seeking private investors to revitalise ageing infrastructure, the infrastructure investment business began to take shape in the 1990s and 2000s. Today, infrastructure funds’ assets under management have grown almost five-fold over the past decade, reaching UD$1.3 trillion, according to Preqin.

This exponential growth is equally driven by the new megatrends reshaping our global economy:

• Digitalisation: Increasing connectivity through e-commerce, IoT, remote work, and AI requires more fibre, telecom towers, and data centres

• Decarbonisation: The transition to renewable technologies results in over $4 trillion annual investments in energy infrastructure, including renewables, energy storage, smart grids, alternative fuels, and the electrification of the transportation sector

• Reshoring: Geopolitical uncertainties have led governments to prioritise self-sufficiency, leading to increased investments in onshoring and reindustrialisation, including intermodal logistics platforms, ports, railways, airports, and roads

• Social infrastructure: The parallel growth and ageing of the world’s population requires more education such as schools, universities, etc. and better treatment in terms of additional medical services, clinics, and related services such as radiology, laboratory chains, etc.

The success of the asset class is not only driven by strong investment demand but by favourable characteristics that offer better economic advantages to investors, such as: high barriers to entry; (quasi) monopolistic situations; the essential nature of the assets, as well as long-term stable and predictable cash flows, usually derived from regulated and/or long-term contracted revenue streams.

Furthermore, the post COVID-19 global economic rebound and the war against Ukraine triggered a sharp increase in prices, wages, and energy costs, pushing us into a new macroeconomic paradigm characterised by permanently higher inflation and interest rates. As a result, we at AltamarCAM Partners strongly believe that investors should consider increasing their portfolio allocations to assets with inflation-hedging attributes. In this respect, infrastructure investments have performed strongly in high inflation environments due to their typically inflation-linked revenue streams; their ability to protect themselves from cost increases and benefit from operating leverage, and their long-term fixed-rate financing structure, which mitigates the rise in financing costs.

At AltamarCAM Partners, after more than a decade of investing in infrastructure through our dedicated fund of funds, secondary and co-investment strategies, we have seen empirical evidence and external factors that underline this robust behaviour and the low volatility of infrastructure investments, irrespective of the economic cycle. This positive outcome is also underpinned by the strong industrial experience of our investment team and the excellent reach into the infrastructure market which offer strong advantages to our investment programmes in terms of deal sourcing, execution, and value creation.

We’re proud of our Invest Europe membership thanks to the networking, data and insights and policy work it undertakes on behalf of the industry in Europe. More specifically, the association’s recent re-launch of its Infrastructure Roundtable for industry players such as AltamarCAM Partners is a critical step, given the opportunity for private capital in infrastructure.

As infrastructure investments have emerged as crucial avenues for sustained growth, providing solid foundations for both public and private sectors, the Infrastructure Roundtable is a welcome addition to better represent the diversity and strength of our industry.

Frank Amberg
Member, Limited Partners Platform Council, Invest Europe
Managing Director, Head of Infrastructure Germany, AltamarCAM Partners