Historically, much major infrastructure was owned and operated by governments as state-owned enterprises. Starting in the 1990s, many governments in developed countries privatized such infrastructure as electricity, natural gas, telecommunications, and railroads, as well as airports, seaports, and toll roads. Some infrastructure was sold to investors, either in whole or in part. But in many other countries, such enterprises were leased under long-term public-private partnership arrangements (PPPs). A growing number of governments also began to use long-term PPPs to develop brand new infrastructure, such as a new airport (India) or toll road (numerous countries in Latin America). The sale or lease of an existing facility is termed a “brownfield” transaction, while PPPs for new facilities are referred to as “greenfield” transactions.
The need to finance both types of transactions has spurred the creation of a new kind of financial entity: the infrastructure investment fund. These funds enable various kinds of investors (insurance companies, investment banks, pension funds, etc.) to pool their capital and hire staff experienced in infrastructure finance and management to build a portfolio of infrastructure assets. Some of these funds are set up for a limited term (often 10 years), at which point the assets are sold to others and the proceeds distributed. Other funds are open-ended, with no set time frame but generally much longer expected duration. Some infrastructure investment funds specialize in a geographic region (e.g., Europe) or in a sector (such as energy or transportation).
During 2018, Infrastructure Investor reported that investors put a record $80 billion in new money into infrastructure investment funds. Pension funds continued to expand their participation in infrastructure, viewing this as a way to diversify their portfolios in hopes of increasing the overall return on their assets. Conventional and renewable energy displaced transportation as the number one interest of infrastructure investors in 2018.
This report reviews 2018 developments in the infrastructure investment fund arena, explores a relatively new concept called “infrastructure asset recycling,” explains the growing interest in this sector by public-sector pension funds, and summarizes major PPP projects worldwide and in the United States as of 2018.