For investors familiar with traditional shares and bonds, the idea of owning infrastructure assets might seem like unfamiliar terrain. But as global markets face greater uncertainty, interest is growing in investments that can offer differentiated returns, shelter against inflation, and exposure to long-term themes.
While there are funds and investment trusts, like REITs, who invest in infrastructure, private equity could dive deeper into these investments.
And it’s a growing corner of the private market, where investors buy directly into investing in the essential assets that keep the world running.
This article isn’t personal advice. If you’re not sure whether an investment is right for you, please seek advice. Private markets are considered high-risk investments for experienced investors and should only form a small part of a diversified portfolio. If you choose to invest the value of your investment and any income from it will rise and fall, so you could get back less than you put in.
What is private infrastructure?
Private infrastructure is closely related to private equity. Both involve taking ownership stakes in unlisted assets, and both often include long-term investment horizons and active asset management.
But while private equity focuses on companies, infrastructure centres around the essential physical assets that underpin economic and social activity, like energy generators, transport networks, water utilities, fibre-optic networks or data centres.
Private investors could own all or part of these assets, earning returns from the income they generate. The returns are often backed by long-term contracts or regulated frameworks, as well as from potential capital growth achieved through development or operational improvements to the underlying asset.
Why consider investing in infrastructure?
Infrastructure investing offers a unique combination of characteristics that can make it an attractive addition to a diversified portfolio.
Potential stability of returns: Infrastructure assets tend to provide more consistent, predictable returns compared to other private market strategies, thanks to the contracted or regulated nature of their income.
Shelter from Inflation: Contracted and regulated incomes are generally index-linked, meaning they change in line with – and so provide shelter against – shifts in inflation.
Diversification: Returns are typically unlinked with traditional public equities or bonds, due to differentiated risk and return drivers.
Defensive characteristics: These essential assets tend to be less sensitive to market cycles, making them valuable in periods of economic volatility.
Long-term exposure to global trends: Infrastructure plays a vital role in the transition to a low-carbon economy and the digitalisation of economies, with renewable energy, sustainable transport and digital infrastructure among the most active areas for investment.
Infrastructure is not without its risks. Due to its long investment timelines, it can carry political and regulatory risks, such as changes in government policies or permitting delays; construction and operational risks, including cost overruns, delays, and technical failures. Climate and ESG-related risks can increasingly influence valuations so investors should thoroughly research potential investments.
What are the types of infrastructure investment?
As with private equity, infrastructure spans a broad spectrum of strategies and risk-return profiles.
Core infrastructure
These are typically buy-and-hold investments in essential, operational assets with relatively stable, contracted income streams. These could be toll roads, regulated utilities, or wind farms and solar parks with long-term power purchase agreements.
Return profile
Lower but potentially more stable, largely income-driven.
Risk profile
Comparatively lower risk than other private market investments due to mature asset base and more predictable cashflows.
Core+ infrastructure
Core+ strategies still focus on income but take on slightly more complexity or operational risk, for example through asset enhancements or exposure to market pricing in energy.
Return profile
Balanced between income and some capital appreciation.
Risk profile
Moderate, often driven by incremental improvements in operations or asset management.
Value-add infrastructure
These strategies target higher returns by investing in developing or transforming infrastructure platforms, such as building out a network of EV charging stations or expanding a renewable energy portfolio.
Return profile
Higher, with more emphasis on capital gains.
Risk profile
Higher, due to development risk or reliance on future growth and scalability of assets and platforms.
Sector-specific strategies
Infrastructure strategies can also be highly specialised, focusing on themes like:
Renewables and energy transition: Including wind, solar, battery storage, electric vehicle infrastructure and green hydrogen.
Digital infrastructure: Data centres, fibre networks, and telecom towers.
Transport and logistics: Airports, ports, and toll roads.
Social infrastructure: Hospitals, care homes and other social infrastructure assets, often constructed and managed under long-term public-private partnerships.
What about the costs?
Like other private market investments, infrastructure tends to be illiquid, with traditional funds often having lives of 10 years, or even much longer. However, newer semi-liquid structures, such as long-term asset funds (LTAFs), and listed infrastructure investment trusts offer greater flexibility and more accessible entry points for individual investors.
Compared to private equity, infrastructure investments generally target lower total returns, but they can also come with lower volatility and higher predictability. Core infrastructure funds, for example, may aim for high single-digit annualised returns, while value-add strategies may seek mid-teens outcomes.
Importantly, much of the return is derived from contractual income, which can help to smooth performance over time and provides natural shelter from inflation. though this is not guaranteed and you could get back less than you invest.
Traditional fund fees in infrastructure tend to follow similar models to private equity – commonly a 1–2% annual management fee and a performance-based fee over a return hurdle. However, growing competition and the emergence of new fund structures has introduced a wider range of fee structures.
Who is infrastructure for, and how can investors get involved?
Infrastructure could be considered by investors seeking long-term, potentially resilient income and exposure to essential economic assets. It could bring some defensive ballast to a diversified portfolio which could be useful in today’s volatile macroeconomic environment – and the asset class has still historically offered a material return comparative to public market investments, although past performance is not a guide to the future.
At the same time, for investors interested in thematic opportunities, infrastructure offers direct exposure to transformative trends like decarbonisation, electrification, and digitalisation.
With its blend of some stability, diversification, and alignment to global megatrends,. For those willing to invest for the long term, infrastructure could offer a powerful way to combine income, impact and innovation.
Find out more about private equity, private markets and opportunities to invest in them by visiting our Advanced Investing pages.