After peaking in 2022, infrastructure fund launches, fundraising and deals all experienced a drop in 2023. However, this may well be short-term. Global AUM in infrastructure funds exceeds US$1 trillion, returns are healthy, and the sector remains popular as part of a diversified private market portfolio, due to the stable nature of return from long-term contracted cash flows.
One of the other main factors behind infrastructure’s continued popularity is the increasing interest in ESG. Infrastructure includes subsegments like renewable energy, public transportation and broadband networks, which nicely align with infrastructure investment’s key drivers—decarbonization and digitization. Under the decarbonization theme, solar and wind power, non-traditional renewable categories like hydrogen, and other sustainable energy solutions have attracted increasing demand. Strict regulation, particularly in Europe, has also prompted more investors to explore energy infrastructure investments, as the Sustainable Finance Disclosures Regulation (SFDR) requires funds to report their ESG commitments.
Digging into the theme of digitization, which refers to the transformation from mechanical to digital processes and automation, investments in this type of infrastructure increase efficiency and drive down costs. An example of this includes deploying smart technologies in industrial operations to optimize energy consumption.
While not every new alternative energy concept is perfect, the combination of demand from regulators, governments and society will continue to drive infrastructure investments. However, the variety of categories and subsegments and the diversity of fund types and structures create increased operational complexity. Fund managers may outsource operational activities to access advanced technology, automation and expertise.
SS&C is a leading innovator in technology-powered solutions and operational services for the global investment management industry. Our expertise covers the full range of private market investments, including infrastructure, real estate, hedge, private equity and venture funds. To learn more about the drivers behind infrastructure investment, outsourcing and how SS&C can help, download our "Navigating the New Frontier in Infrastructure Investing" whitepaper.
