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At this point in the economic cycle, when higher interest rates and inflation prevail, investors are seeking premium returns from their infrastructure allocations.

The global infrastructure landscape presents a significant opportunity for investors. A vast infrastructure spending gap exists worldwide, driven by population growth, urbanization, and aging infrastructure. Concession infrastructure, which refers to a contractual arrangement between a public authority and an economic operator, offers a compelling solution to address this gap while potentially providing attractive returns for investors.

We explore three key drivers that make concession infrastructure a powerful investment vehicle: the growing infrastructure spending gap, strong client appetite, and a robust market opportunity.

A widening infrastructure spending gap

The global infrastructure deficit is estimated to be trillions of dollars.1 The World Bank estimates that developing markets alone need an annual investment of $1.5 trillion in infrastructure, exceeding current spending levels.2 This gap is fueled by several factors:

  • Population growth and urbanization
    Infrastructure is critical for economic and social development. It provides access to clean, safe drinking water and power for lighting and heating. Roads and railways facilitate social mobility. Rapid population growth, particularly in urban areas, necessitates significant transportation, water, and energy infrastructure investments. Existing systems will struggle to keep pace with rising demand.

    The total investment need for infrastructure and the sustainable development goals to boot is estimated at $38 trillion for 2020–2030, with the total investment gap being $5.6 trillion.2

    It is estimated that 6.7 billion people will live in urban areas by 2050 &ndsash; an increase of 47% compared to 2022 (Chart 1).3

Chart 1. Number of people living in urban, rural areas of the world

  • Aging infrastructure
    Much of the world's infrastructure was built decades ago and is nearing the end of its useful life. The cost of repairs and maintenance is increasing, and failing infrastructure poses safety and economic risks. Required infrastructure investment is forecast to reach US $94 trillion by 2040, while the current annual spending gap is $3.7 trillion.2 Given government constraints around the world, private capital has a critical role to play.
  • Digitalization
    New technologies like automation and digitalization can improve operational efficiency and create new revenue streams for concession projects. Digitalization is projected to reduce global emissions by up to 20% by 2050. It could also provide access to phones, computers, and the internet to roughly 2.9 billion people globally.4,5
  • Climate change / Decarbonization
    Mitigating climate change urgently requires significant investments in renewable energy, energy efficiency, and resilient infrastructure that can withstand extreme weather events. Given these challenges, governments increasingly turn to concession investing to bridge the infrastructure funding gap.

What is concession infrastructure investing?

Concession infrastructure investing allows private companies to design, build, finance, and operate public assets, such as social and economic greenfield and brownfield infrastructure projects, in exchange for user fees or government payments over a long-term concession period. This structure offers several advantages:

  • Private capital mobilization
    By attracting private investment, concessions ease the burden on government budgets, allowing them to focus resources on other priorities.
  • Expertise and innovation
    Private companies bring expertise in project management, construction, and efficient operations. This can lead to faster project completion, improved service delivery, and the adoption of new technologies.
  • Risk sharing
    Concessions create a partnership between the public and private sectors. The concessionaire bears some of the construction and operating risks, incentivizing efficient project management.

A strong client appetite

Institutional investors are increasingly seeking long-term, stable investments that can help mitigate market volatility risk. Between 50%–54% of clients confirmed they wish to increase their allocations to infrastructure and sustainable investment strategies in 2024.6

Chart 2. Strong tailwinds in the fundraising market for infrastructure

Concessions offer several characteristics that align well with these investment objectives:

  • Predictable cash flows
    Concessions typically generate predictable monopolistic cash flows through user fees or government payments, allowing for accurate risk assessment and return projections.
  • Long-term investment horizon
    Concessions are often structured with long concession periods (20–30 years or more). This is designed to provide investors with a consistent income stream over a lengthy period.
  • Essential assets with steady demand
    Concessions often involve essential infrastructure assets like schools, hospitals, toll roads, airports, and desalination plants. These assets have strong underlying demand, reducing vacancy or downtime risks.
  • Inflation hedging
    Many concessions incorporate inflation-linked pricing mechanisms, mitigating investor returns against the erosion of purchasing power.

A robust (and growing) market opportunity

The concession market offers diverse investment opportunities across asset classes and geographic regions. Forecasts show that global unlisted infrastructure AUM will reach $1.7 trillion by 2028, while unlisted infrastructure will reach $1.2 trillion (Chart 3).7

Chart 3. Infrastructure AUM by regional focus*

An increase in diversified market opportunity allows investors to tailor their portfolios to match their risk appetite and return expectations. Key trends driving the growth of the concession market include:

Emerging markets

Developing countries with significant infrastructure needs are increasingly turning to concessions as a means to attract private capital.

Sustainability

The growing emphasis on sustainability drives investments in renewable energy, energy efficiency, and green infrastructure, all of which are ripe for concession development.

Final thoughts

Concession infrastructure offers a compelling opportunity for investors seeking historically stable returns and a positive environmental and social impact. By addressing the global infrastructure spending gap, concessions provide a win-win situation for investors and governments.

With what we believe is a strong client appetite for predictable cash flows and a robust market opportunity, concession investing is well-positioned for continued growth in the years to come.

1  "The world is facing a $15 trillion infrastructure gap by 2040. Here's how to bridge it." World Economic Forum, April 2019. https://www.weforum.org/agenda/2019/04/infrastructure-gap-heres-how-to-solve-it/.
2  "Forecasting infrastructure investment needs and gaps." Global Infrastructure Outlook. Global Infrastructure Hub, February 2022. https://outlook.gihub.org/.
3 "Urbanization." Our World in Data, February 2024. https://ourworldindata.org/urbanization.
4  "Digital solutions can reduce global emissions by up to 20%. Here’s how." World Economic Forum, May 2022. https://www.weforum.org/agenda/2022/05/how-digital-solutions-can-reduce-global-emissions/.
5 "Development Co-operation Report 2023: Debating the Aid System." OECD, February 2023. https://doi.org/10.1787/f6edc3c2-en.
6 "Large Asset Owner Barometer 2024." Mercers, October 2023. https://www.mercer.com/assets/global/en/shared-assets/global/attachments/pdf-gl-2023-mercer-large-asset-owner-barometer.pdf.
7 "Global Infrastructure Report 2024." Preqin, April 2024. https://www.im.natixis.com/images/docs/articles/Preqin-NIM-Infra_1.pdf?wmode=transparent.

Important information

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.

AA-300524-178810-1

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