A Bump in the Road: Private Equity Infrastructure Investment Set to Rebound Following Slowdown in 2023

• Private Infrastructure Investment Has Been Put to the Test in a Challenging Environment; the Number of Infrastructure Deals Declined by 18% in 2023, and Global Infrastructure Fundraising Fell by 50% from a High of $176 Billion in 2022 to $89 Billion
• Private Infrastructure Investment Will Be Crucial, Given the High Demand for Renewed Infrastructure and the Need to Bridge a Massive Funding Gap
• Operational Value Creation Will Become Even More Critical to Drive Returns

BOSTON—Private investment in infrastructure has had sustained growth, with a compound annual growth rate (CAGR) of 18% from 2018 to 2023. Stable returns, low cyclicality, the ability to pass through cost inflation, a frequently regulated operational environment, and high barriers to entry have guaranteed unlisted infrastructure a spot in state-of-the-art strategic asset allocations.

Despite the 2023 decline in dealmaking and fundraising, the outlook going forward is positive. As evidence of the forthcoming recovery in infrastructure fundraising, limited partners (LPs) plan to increase their commitments to the asset class. Led by pension funds and private wealth managers, LPs expect to boost their investments by more than $600 billion by 2027.

This is a key finding of Boston Consulting Group’s new report, Infrastructure Strategy 2024: Creating Value Through Operational Excellence, released today.

“There is a pressing need worldwide for new and revitalized infrastructure, and private investors will have a key role to play,” said Wilhelm Schmundt, BCG managing director and senior partner, global lead for infrastructure investment, and a coauthor of the report. “It has been a challenging year, but we expect the outlook for private infrastructure investment to strengthen, driven by an ongoing adjustment of transaction prices and an increasing need to return money to investors in an economic environment where high levels of dry powder await deployment.”

Energy, Transport, and Digital Are Key Areas of Investment 

Geographically, the great majority of private infrastructure investment activity in 2023 occurred in Europe and North America. Almost 75% of the world’s infrastructure portfolio companies are located there.

The most active areas for deal-making are energy and environment, transport and logistics, and digital infrastructure, with social infrastructure seeing increasing investor interest as well:

• Aggregate deal value of private investment in the energy and environment sector, which is seeing massive tailwinds from the global decarbonization agenda, totaled $1.1 trillion from 2018 to 2023, accounting for almost 45% of all private infrastructure aggregate deal value during the period. Most privately held assets in the sector focus on renewables and energy services; Europe hosts the largest share of assets, followed closely by North America.
• Private investment in the transport and logistics sector totaled almost $510 billion from 2018 to 2023, comprising approximately 20% of all private infrastructure investment during the period. Railroad, air-related, and sea-related projects make up the majority of privately held assets in this sector.
• Private investment in the digital infrastructure sector from 2018 to 2023 totaled nearly $420 billion—almost 20% of all private infrastructure investment during the period. In 2023, most of the activity in Europe in this sector focused on privately held data-center assets, while the vast majority of assets in North America were in mobile data and end-user services.

Infrastructure Investors Need to Double Down on Operational Excellence

As costs increase and the potential for returns from rising multiples and debt reduction declines, investors in infrastructure assets must adopt a refined approach to generate returns. Operational improvements at portfolio companies will be even more critical to creating value. 

Leading funds will follow a clear playbook:

• Focus on the full investment cycle. All too often, funds restrict their operational value creation efforts to extrapolating sell-side plans or devising plans that cover only the first 100 days after closing a deal. In contrast, leaders begin planning at the due diligence stage, developing and quantifying a clear hypothesis on how to improve operational performance throughout the ownership cycle to serve as a foundation for their efforts.
• Assess all value creation levers. Leaders take into account every potential operational lever in the value creation framework in light of the portfolio company’s future positioning, including both top- and bottom-line levers—even if the value creation plan focuses on a selection of the most promising initiatives.
• Institute performance requirements. By commanding a systematic value creation framework, leaders ensure that they have an excellent management team and the right capabilities in place. They also establish proven governance mechanisms and foster needed cultural changes—all in order to create the greatest value through operational improvements.

“Infrastructure investing has been put to the test by recent macroeconomic uncertainty, but the path to value creation is clear,” said Alex Wright, BCG managing director and partner, and a coauthor of the report. “Clear levers for value creation are available in most portfolio companies, and having the right capabilities as well as a well-structured and thoughtfully executed plan is key.”

Download the publication here.

Media Contact:
Eric Gregoire
+1 617 850 3783
gregoire.eric@bcg.com