Global infra investment to reach $4trn by 2017

The infrastructure needs of advanced and developing countries are expected to drive global investment in the sector to $4trn in the next five years, Bain & Co. finds.

While the infrastructure needs of developed and developing countries differ – ageing infrastructure in need of upgrade and maintenance for the former; building new infrastructure for the latter – the end result is that global infrastructure investment is expected to reach $4 trillion by 2017, according to a study by international business consulting firm Bain & Company.

Private capital, which currently accounts for approximately 15 percent of total infrastructure investment, is expected to play a greater role as infrastructure demand and investment increase.

“Weakened public finances are triggering a worldwide influx of private capital, at a time when private investment capital has been steadily accumulating, and is now eager for long-term, low-risk, inflation-protected returns that are better insulated against economic cycles,” the firm said in a statement announcing the study’s findings.

From a sector perspective, infrastructure demand is primarily driven by power and gas utilities, oil and gas, and transportation – sectors that along with electric utilities constitute Bain & Co’s definition of core assets, the focus of this study.

Power and gas utilities, oil and gas, and transportation also account for 75 percent of private infrastructure investment over the past five years and are expected to continue dominating future demand as well.

The core group is expected to grow at an average of 3 percent per year through 2017, while the social infrastructure group – comprising water, healthcare, and education – is expected to grow 4 percent during that same period, according to the study.

Increased demand and increased investment also means a new set of challenges, which Bain & Co. has identified as regulatory and economic instability within individual markets; while low-cost capital and a lack of good investment targets has led to increased competition and rising asset prices.

“Infrastructure has looked very attractive in a world starved for yield,” said Nacho Rios, the study’s lead author and a partner at Bain’s Madrid office.

“But the mechanics of risk and asset pricing are shifting,” he explained. “We’re seeing a much greater need for specialisation as each country and sector’s needs create unexpected challenges for the uninitiated.”

Rios also expects institutional investors will allocate at least 5 percent of assets under management to infrastructure compared to the less than 5 percent the majority of investors allocates currently.

Headquartered in New York and established in 1973, Bain & Co. has 50 offices in 31 countries, advising multinational, private equity and other corporations across every economic sector.