Institutional Investor Interest in Infrastructure
For institutional investors, infrastructure is a distinct third asset class alongside equities and bonds: a long-term, predictable cash flow partly linked to inflation.
How institutional investors view infrastructure
Pension funds seek long-lived assets that match their long-term liabilities (future pension payments); an operating infrastructure asset naturally fits that profile.
Insurers follow similar logic, needing stable cash flows to meet long-term policy obligations.
Interest in post-construction assets
Institutional investors usually don't want to carry construction risk; interest therefore usually goes to operating, revenue-proven (brownfield) assets.
This means financing a project at the development stage and selling an operating asset draw on different investor bases.
Direct investment versus fund investment
Large institutional investors sometimes invest directly in an infrastructure asset, and sometimes become indirect investors by allocating capital to an infrastructure fund.
Direct investment gives more control but requires more in-house expertise; fund investment means buying that expertise externally.
The appeal of inflation-linked revenue structures
An infrastructure asset whose tariff or payment is indexed to inflation is particularly attractive to institutional investors, because it provides natural protection in a portfolio whose liabilities are also usually inflation-sensitive.
This feature can draw demand even at a lower expected return than a comparable asset without inflation protection.
Preparing a project for institutional investors
For an infrastructure project to attract institutional investor interest, it usually needs a long, predictable revenue contract, low operational complexity, and transparent financial reporting.
This preparation opens the project to a broader capital base, not just bank financing.
InfrastructureIn infrastructure the financing tenor approaches the life of the asset, so the structure has to be thought of in twenty-year terms from day one.
Learn moreFrequently asked questions
What size of project interests institutional investors?
Usually mid to large scale; due to transaction costs, very small projects are typically inefficient for this investor base.
What's the difference between brownfield and greenfield investment?
Greenfield refers to a project to be built from scratch; brownfield refers to an operating asset with proven revenue. Institutional investors usually prefer brownfield.
How does a company reach institutional investors?
Usually through an advisor; institutional investors tend to review large-scale opportunities through specific intermediary channels rather than direct marketing.
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