New Equities for Infrastructure Investment

SINGAPORE – Infrastructure projects can be among the most productive investments a society can make, with clear links to a country's economic growth. For private investors, however, the situation is more complicated. Infrastructure projects can offer reliable – if lower-than-average – returns. But existing asset classes all too often fail to provide the structure needed for these projects to compete with traditional equity or debt.

At the World Economic Forum's annual meeting in Davos, Switzerland, in January, Walter Kielholz, Chairman of Swiss Re, and former British Prime Minister Gordon Brown advocated for the creation of a new asset class for infrastructure – as we have done previously, as well. So how, exactly, can the world harness the potential of private money for infrastructure?

The size of the pie is huge, and so are the opportunities for private investors. The pipeline for infrastructure projects in emerging markets is estimated to have surpassed $1 trillion – $150 billion of which is expected to be raised from private sources. In mature markets, infrastructure investment is projected to reach $4 trillion by 2017.

Our analysis of investment deals over the past 18 months shows that public-private partnerships increasingly rely on capital markets to source funds, even as banks rein in lending in order to comply with the regulatory provisions set out by the Third Basel Accord. Liquidity remains limited in the wake of the 2008 financial crisis, the legacy of which includes a regulatory regime that is not conducive to long-term investment. Though financing for public infrastructure has returned to 2008 levels, little of it is being funneled into new projects. Most funds have targeted existing infrastructure – investments that are considered relatively safe, because they entail little or no construction risk and have demonstrated their potential to generate stable cash revenues.