What Is Infrastructure?

Private infrastructure funds aim to provide investors with a mix of cash income and capital appreciation and can play a role in complementing a fixed income or real asset allocation.

Infrastructure assets are broadly defined as the basic physical structures and facilities (buildings, roads, and power supplies) needed for the operation of a society or enterprise. Major subsectors include social infrastructure (schools and hospitals); utilities (gas and water systems); transportation (toll roads and airports); and energy infrastructure (power generation).

Infrastructure is one of the few asset classes with characteristics that allow it to not only mitigate the effects of inflation, but also to potentially benefit from increases in prices and interest rates.

 

How Infrastructure Works

Infrastructure projects have long lifespans involving multiple stages from project identification, design and development, implementation and construction, operations and maintenance, exit and divestment.

Investments vary in structure, strategy, and risk level and are typically classified by project development stage.

• Greenfield – Projects that do not currently exist but are in development or under construction. Capital costs include the building of the infrastructure asset as well as costs to maintain it once it is operational.
• Brownfield – Projects that are already operating on a standalone basis or undergoing expansion.

They’re also classified by risk/return profile, ranging from income-generating, stable assets to higher-risk opportunities focused on growth or repositioning. Geography also matters, with different return expectations and regulatory dynamics in developed vs. emerging markets.

Common Infrastructure Categories

Private credit comes in different forms, each with its own level of risk and return. Here’s a quick look at some of the most common strategies:

Strategy	Profile	Example Sectors	Structure and Revenue Drivers
Core	Most stable, income-focused, lower risk	Regulated utilities, mature toll roads	Long-term contracts with government entities. Regulated rates
Core Plus	Moderate risk due to some variability to cash floes. Returns driven by income with some potential for capital appreciation	Midstream energy, transportation (e.g., toll roads, airports) digital infrastructure	Long-term contracts with creditworthy private entities. Additional revenue arrangements tied to volume.
Value Add	Higher risk; returns tied more to capital-appreciation.	Transportation with revenue tied to volume, early-stage midstream energy, assets repositioning for newfound growth.	A mix of long-term contracts on greenfield and/or short-term contracts with less creditworthy entities. Revenue reliant on greenfield or GDP growth.
Opportunistic	Highest risk/return	Infrastructure in developing markets, renewables or new technology	Could include contracts in non-OECD countries or unsecured future contracts. Revenue visibility could be less predictable and erratic.

Benefits of Infrastructure

• Yield – Many assets generate reliable, contract-based income.
• Diversification – Low correlation to equities and bonds can improve overall portfolio resilience.
• Capital Appreciation – Operational improvements and asset expansion can drive long-term value.
• Inflation Protection – Costs are often passed through, offering protection in an inflationary environment. In addition, infrastructure assets are typically large projects with costly new-construction expenses that increase in lockstep with supplies and labor, increasing replacement cost.

Implementation Insight:
Infrastructure may provide useful diversification as part of a fixed income and/or real assets allocation, especially in volatile or rising-rate environments.

 

Key Risk Considerations

• Duration – infrastructure projects often have high initial capital costs and long payback periods, presenting duration risk.
• Complexity – Regulatory oversight, project execution, tax implications and jurisdictional risk can impact outcomes.
• Manager Selection – Experience, sector specialization, sourcing capabilities, and operating expertise vary widely across managers.

 

Implementation Insight:
Investors should be prepared to commit capital for 10-plus years and evaluate manager track records carefully, especially in niche or emerging sectors.

 

Infrastructure: Myth vs. Fact

Myth	Fact
Infrastructure is only about roads and bridge	It includes renewables, data centers, utilities, and social infrastructure.
It’s too risky for conservative portfolios	Core strategies offer stable, regulated cash flows with downside protection.
Only governments invest in infrastructure	Private capital plays a growing role across sectors and geographies.
Infrastructure doesn’t offer growth	Value-add and opportunistic strategies target capital appreciation through development and operational upside.

 

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