Mid-Market report

With its inherent opportunities for value creation and broad exit options, the mid-market is turning LPs’ heads

Competition among large-cap funds has grown intense, but the mid-market is rapidly emerging as an attractive alternative for infrastructure investors. This broad and varied universe of assets means investors can diversify their portfolios across geography, asset type and stage of development.

And upon exit, avenues for a sale are multitudinous; today, prospective buyers include infrastructure funds, pension funds, strategic corporates and family offices, as well as larger funds seeking platform acquisitions.

For managers, the ability to buy smaller platforms and add value through operational improvements or professionalisation of services makes the mid-market a rich incubator of outsized returns.

The key developments driving the mid-market’s rise

Over the past decade, infrastructure investing has been defined by the rapid growth of large-cap funds. Firms actively pursued scale, stability and particularly core assets as they quickly transformed into the industry behemoths that we see today. Nevertheless, increased competition, record levels of dry powder and elevated valuations are rapidly changing the investment landscape.

LPs are now looking further down the investment spectrum. Less competition, greater flexibility and specialist expertise are boosting appetite for the mid-market, increasing the opportunity set for investors eager to deploy their capital and catalyse value creation.

Structural changes are another factor – particularly across decarbonisation, digitalisation and decentralised infrastructure – again raising the value of sector-specific expertise. Many of these assets are in the very early stages of their long-term growth trajectory, creating a tailwind for the entire asset class.

Meanwhile, the very definition of infrastructure is being stretched, as a variety of subsectors display the core characteristics of legacy infrastructure: stable cashflows, recession resistance, low elasticity and assets critical to society.

Here we explore 10 key themes that showcase the many challenges and opportunities that the mid-market presents to investors.