What is private infrastructure?
Infrastructure refers to investments in companies and projects associated with essential services. Examples of infrastructure include utilities (water treatment plants, power plants), logistics/distribution networks (highway and rail systems, airports), telecommunication networks (cellular towers), and commodity storage (oil and gas, agriculture). These infrastructure assets are important to produce economic growth.
Investments in these assets can be made through equity ownership or by lending to them. Exposure can be gained through publicly traded or private pooled investment vehicles, known as private infrastructure vehicles, that are managed by a third party.
These private infrastructure vehicles are priced based on the underlying investment performance of the projects. Often, such private infrastructure funds demonstrate lower levels of price volatility than publicly traded infrastructure equities or funds/ETFs, in which prices can be influenced by external equity market supply/demand imbalances. This feature positions private vehicles to be less prone to emotional selling or buying decisions, but it also means such structures may offer only periodic liquidity, if any.
Investors typically invest in private infrastructure to seek diversification, greater asset stability, durable inflation-resilient income and long-term growth potential.
Five realities of private infrastructure
1. Private infrastructure has delivered enhanced diversification
Private infrastructure has historically demonstrated significantly lower correlation to public equity markets than publicly traded infrastructure—with a correlation of 0.55 compared to 0.87 for publicly traded infrastructure. This has historically made private infrastructure an effective source of portfolio diversification.*
Low correlation to publicly traded asset classes
| Public equity | Public fixed income | Publicly traded infrastructure | Private infrastructure | |
|---|---|---|---|---|
| Public equity | 1.00 | |||
| Public fixed income | 0.02 | 1.00 | ||
| Publicly traded infrastructure | 0.87 | 0.13 | 1.00 | |
| Private infrastructure | 0.55 | -0.10 | 0.61 | 1.00 |
Public equity = MSCI World Index.
Public fixed income = Bloomberg US Aggregate Index.
Publicly traded infrastructure = S&P Global Infrastructure Index.
Private infrastructure = Burgiss All Infrastructure Index.
Correlations calculated using quarterly data, Q1 2002 – Q4 2023, which was chosen because it is the longest running time series across all asset classes.
Source for index returns is Bloomberg for public, Burgiss for private.
2. Private infrastructure has experienced shallower drawdowns than publicly traded infrastructure
Private infrastructure investments have historically experienced less frequent and shallower drawdowns than publicly traded infrastructure. This has resulted in lower volatility, which can potentially make private infrastructure a key building block of more resilient portfolios.
Robust relative downside protection over the past two decades
3. Private infrastructure debt has historically provided a lower risk of default
The nature of private infrastructure’s long-term contracted cash flows and essential services has resulted in lower-than-average cumulative defaults relative to other project finance sectors, as well as favorable recovery rates.1 In addition, most of the private debt to infrastructure projects are floating rate, which can help reduce interest rate risk.
Historically lower long-term default rates1
4. Being backed by essential assets has helped private infrastructure maintain value and minimize loss
Private infrastructure returns have historically outpaced publicly traded infrastructure returns. Additionally, many private infrastructure investments are structured in ways that may help mitigate downside risk and deliver consistent performance over time.
5. Private infrastructure has provided a hedge against inflation
Over the long term, inflation can erode investors’ purchasing power. With its high barriers to entry, private infrastructure has historically demonstrated the ability to maintain pricing power, particularly during periods when inflation is high.
Historical resilience during periods of high inflation
Publicly traded infrastructure = S&P Global Infrastructure Index.
Private infrastructure = Burgiss All Infrastructure Index.
Inflationary environment definitions based on quintiles (Low: <20%, Medium: 20%-80%, High: >80%) of quarterly US CPI for quarterly data from Q1 2002 - Q4 2023.
There are many differences between private and public market investments.
This data is for illustrative purposes only.
Publicly traded infrastructure is represented by the S&P Global Infrastructure Total Return Index. Private infrastructure is represented by the EDHECinfra Global Broad Market Unlisted Infrastructure Equity Index, value-weighted (capped) (USD).
Multiple tailwinds are aiding the growth of private infrastructure
An estimated $9.2 trillion of annual global infrastructure investment will be needed through 2050 to meet the world’s needs.2 A large portion of these needs will be for structural changes that include decarbonization, grid modernization, future communications and water sustainability. These structural changes will continue to support the historically attractive opportunity of private infrastructure, while government policy and stimulus tailwinds create the opportunity for accelerated growth.
Why is private infrastructure playing an increasingly important role in individual investors’ portfolios?
Whether investors are navigating inflation risks, rising interest rates or public market volatility, most investors need guidance about how to better prepare their portfolios for uncertainty and opportunities to grow their wealth over the long term. Private infrastructure is a unique asset class that can offer meaningful long-term benefits for an investor’s portfolio.
Private infrastructure has delivered historically stronger absolute and risk-adjusted returns
As of December 31, 2023. Sources: Burgiss and Bloomberg.
