Infrastructure investing is a unique asset class that has recently gained cachet as investors search for long term stable returns or yield greater than treasury bonds that provide inflation protection. Over the last two to three years, the overall growth of private infrastructure investing has grown tremendously; more than $1.7 trillion has been invested in infrastructure assets globally. Fundraising of infrastructure funds has raised more than $200 billion since 2006. Due to infrastructure investments outperforming stock and bond markets, we are going to see even more capital flood the space.
What are infrastructure assets? Core infrastructure assets typically consist of roads, bridges, tunnels, ports, airports, water distribution, and power generation. These are physical assets with economic lives of 25- 50 years. Over the years the investment strategies and types of assets have expanded in into gray areas of investing beyond the traditional “boring” infrastructure assets.
Impact investing was first discussed as a new financial investment in 2007 at the Rockefeller Foundation’s Bellagio Center, where a group of like-minded conscious and collaborative investors were credited for coining the term. Impact investing hasn’t been around as long as the infrastructure asset class but in many ways the idea of double or triple bottom line investing was a financial tool that everyone had unknowingly bought into without really highlighting the social and environmental benefits. According to the Global Impact Investing Network (GIIN), “impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.” Impact investing can occur across a broad spectrum of asset classes, various sectors and across all geographies. GIIN estimates the global impact investing market to be over $500 billion and is attracting attention from various capital sources including pension funds and foundations, just like infrastructure has in the past.
Environmental or renewable assets are investment platforms that can be found in both impact and infrastructure investment funds. Investing in wastewater treatment projects, which provide clean water to communities, could fall into the category of sustainable infrastructure or impact investing. Clean energy, water treatment/delivery and preservation of nature or restoration are all sub-sectors of infrastructure investing that has seen a lot investment activity as these investments require a long-term commitment or investment period with long lasting results and great financial rewards.
Social infrastructure is another sector overlap into most impact investing funds or affordable housing investment platforms, as it supports a social good and provides a number of benefits for the community. Within social infrastructure, sub-sectors include university and senior care housing, hospitals, municipal buildings and public service structures including convention centers, museums, sporting facilities and more. Within impact, these same projects or investments would be implemented in emerging or developing markets. Many of the contracts are structured alongside governmental entities and private institutions. In some cases, nonprofit or foundation-based grants are awarded to a project as well depending on the ultimate objective or investment strategy. In emerging markets, partnerships are crucial with the World Bank or International Finance Corp to invest capital alongside private investors.