Infrastructure investing will continue to grow as institutional investors seek exposure to sustainable assets and target new infrastructure opportunities that arose during the pandemic, according to Cerulli Associates.
Infrastructure investments, which typically deliver low returns with low volatility, have grown to $583 billion as asset allocators have sought diversifying investments that can provide a steady source of income, Cerulli said in a January research report. While fundraising for private infrastructure funds — like most other types of private capital funds — slowed in 2020, Cerulli said that demand for renewable energy, as well as the digital infrastructure needed to power remote work, will create new opportunities in the asset class.
“Working remotely and e-commerce trends that Covid-19 accelerated have stimulated global demand for digital infrastructure that are likely to continue,” the Boston-based research and consulting firm said in its report.
This fast-growing segment — including fiber networks, telecommunication towers, and data centers — is already being capitalized on by managers including Goldman Sachs Group and KKR & Co., which are deploying a combined $4 billion toward data center development, according to the report.
“Investment is required for both upgrading aging digital infrastructure and installing new digital assets, particularly in developing countries experiencing rapidly growing demand for connectivity,” Cerulli said.
The other big trend driving infrastructure investing, according to the research firm, is environmental, social, and governance investing.
“Infrastructure, particularly clean energy, water, and wastewater assets, has become increasingly attractive to a growing pool of investors seeking sustainable or socially responsible investments,” Cerulli said.
Major investments in the sector over recent years include KKR’s $1.4 billion investment in NextEra Energy’s renewable assets and the $5 billion acquisition of renewable energy developer Equis Energy by Global Infrastructure Partners and PSP Investments, according to the report.
“Investors’ appetite for sustainability and ESG strategies will continue to drive renewable energy investments,” Cerulli said.
As infrastructure investing continues to grow, the research firm expects asset managers to offer private credit funds as a different way of targeting infrastructure exposure. Likewise, the maturation of the infrastructure asset class will lead to more secondaries trading, Cerulli said.
“The asset class continues to evolve, providing investors with new strategies — e.g. secondaries and debt — and with a growing opportunity set beyond traditional transport and energy to digital and logistics investments,” Cerulli said.