Private Infrastructure: a way to invest in the megatrends shaping global industry?

What do 5G towers in Germany, Colombia’s largest hydroelectric facility and a semiconductor foundry in Arizona have in common?

They’re all examples of massive installations owned by Private Infrastructure firms.

Private Infrastructure has witnessed a rapid ascent over the past 25 years. Total assets under management have expanded 250-fold, from $5 billion in 1999 to $1.3 trillion or so in 2023. Much of this investment was funded by large institutions seeking the stable long-term cashflows and inflation protection that infrastructure can potentially offer.

But for smaller investors, getting access to these same assets has been much trickier. While it’s true that some major infrastructure firms are listed, until recently there was no easy way for individuals to invest in the underlying assets they own and operate.

This is now changing, opening up considerable opportunities for wealthier and more experienced individual investors.

How do Private Infrastructure investments work? What might the opportunity be? What are the risks? How has Private Infrastructure performed? How could individual investors get exposure to this asset class? This article explains the main facts. 

Most people have an idea of what infrastructure is.

It’s a broad category spanning utilities, transport and communication networks, and the digital architecture we increasingly rely on – such as data centres and fibre-optic cables.

Historically, most infrastructure was put in place by governments. However, much of the heavy lifting is now done by the private sector, thanks in part to the growing scale and complexity of modern infrastructure commitments – not to mention ballooning public sector deficits.

Against this backdrop, large specialist Private Infrastructure firms (the likes of Brookfield and EQT) have risen to prominence.

They manage huge funds that acquire or develop private (non-listed) infrastructure assets – pipelines, shipping containers and so on. They can also play an active role in the operation and management of these assets, drawing on deep sector expertise to add value.

Below is an example of a successful Private Infrastructure investment – of course, there have also been failures.

For decades, Private Markets (including Private Infrastructure) were only open to large institutions, plus a handful of extremely wealthy individuals and family offices.

The main reason for this exclusivity is that traditional ‘closed-ended’ funds typically ask for an upfront commitment of £millions and won’t let investors touch their money for up to a decade or more. Those terms are fine for, say, pension funds and life insurers – institutions with deep pockets and a need for steady, long-term returns to match their liabilities.

But for smaller investors such high minimums and long lock-up periods have not been feasible. Fortunately, that’s all now changing.

Newer evergreen (semi-liquid) funds are friendlier to individual investors. Minimum investments may be as low as £26,000 and you can request to redeem your stake on a rolling basis, usually once a quarter. That said, these investments are still for the long term and restrictions can apply.

Investor interest in the asset class appears to be building. In a recent survey of 300+ investment advisers by Hamilton Lane, 48% planned to increase their exposure to Private Infrastructure in 2025 – more than any other Private Market asset class.

So, what’s the appeal of infrastructure for an individual investor?

One key factor is a bullish long-term macro picture. As noted by Hamilton Lane, “AI needs data centres, the energy transition demands modern grids… global trade also relies on advanced transportation networks.”

In the past few years, many commentators have highlighted the ‘three Ds’ underpinning infrastructure demand – digitalisation, decarbonisation and deglobalisation. These three so-called megatrends look set to spur enormous infrastructure spending over the next 10-15 years.

According to BlackRock CEO Larry Fink, $68 trillion in global infrastructure spending will be needed by 2040. In the UK alone, consultancy EY has identified £1.6 trillion in projects that are currently unfunded. Closing this ‘gap’ could require investment from private capital partners to more than double from current levels by 2040.

Beyond the macro outlook, Private Infrastructure could bring three important benefits to an individual investor’s portfolio, although there are considerable risks (see below) and you should not invest money you cannot afford to lose.

1. Diversification

Returns on infrastructure assets have shown a fairly low historical correlation to equities. This suggests that holding some infrastructure assets may help to diversify a portfolio of stocks and make it more resilient to shocks.

2. Potential for inflation protection

The value of tangible assets like infrastructure tends to rise in line with economy-wide price levels. Furthermore, where revenues are backed by government contracts, these are often indexed to inflation. Both factors suggest that Private Infrastructure may offer investors a way to shield their portfolios against inflation.

3. Potential for lower volatility

Critical services like utilities often have stable and non-cyclical demand. In many cases, revenues are guaranteed by explicit government contracts. This helps to explain why infrastructure has been less volatile than comparable asset classes over recent decades (see chart).

The chart below shows a hypothetical $10,000 investment in three baskets of Private Market ‘real asset’ funds – Infrastructure, Real Estate, and Natural Resources. If you’d invested back in early 2004 those positions might now be worth $64,000, $39,000 and $44,000 respectively. Not only did infrastructure have the highest return during this period – its trajectory was also far more stable than that of real estate and natural resources. For illustrative purposes only; past performance is not a guide to the future.

As with any investment, there are risks. These assets should be considered as long-term and only suitable for experienced investors.

One specific risk relates to changes in interest rates. Building or acquiring Infrastructure is a highly resource-intensive activity requiring large amounts of capital. This may make projects sensitive to changes in central bank rates, which can affect the cost and availability of capital.

Meanwhile, regulatory changes could also have an important bearing on the feasibility of new or existing projects – for example new rules on ESG or sustainability. Political risk is another relevant consideration. In some places there may be a risk of nationalisation. And in the current climate, new tariffs could push up specific input costs.

Finally, Private Markets such as Private Infrastructure are much less liquid than publicly traded markets. You can’t buy and sell your stake on a daily basis. While new evergreen funds are more liquid than traditional funds, it could still take months to get your money back – and there’s no guarantee you’ll be able to exit your position within the requested redemption window.

Before you invest, please carefully read the Risks and Commitments and the relevant offer documents to ensure you fully understand the risks.