Investing in Developed Country Private Infrastructure Funds

Abstract

Infrastructure investment encompasses multiple sectors, geographies, stages, and investment instruments/ products each with their own risk/return attributes. This broad range makes it a versatile asset permitting its consideration in diverse tailored portfolios. Infrastructure has traditionally been under the purview of governmental bodies. Its importance from a public interest perspective cannot be overstated. For several reasons, there has been globally widespread historical under-investment, resulting in degradation of existing assets with simultaneous failure to add new capacity. As this issue is unlikely to reverse course any time soon, forward thinking countries and government entities have sought to encourage convergence of public and private sector activity. Their aim is to help the creation of economically viable new infrastructure assets and upgrade, properly maintain, manage and operate existing ones. Formal contracting structures through active PPPs supported by recent government initiatives have made progress in encouraging private capital investment in infrastructure. A lot still remains to be done. Despite where they stand in the different stages of the privatization process, the collective market opportunity in developed countries remains substantial. These opportunities are in civil aviation, bridges, roads, mass transit, railways, greenfield and brownfield projects, dams, water, waste management and energy. From an alternative investment perspective, infrastructure assets exhibit different risk and return profiles from other private investments; they can be a source of both alpha as well as a valuable diversification tool in portfolio construction. They provide exposure through both illiquid long-term private vehicles as well as liquid publicly traded funds. This versatility makes them extremely attractive for different investor segments.