Home / Alternatives / ‘Monumental’ task has private infrastructure poised to surpass real estate in value

Private markets is clearly a rapidly growing part of the investment ecosystem, with the Australian Securities and Investments Commission (ASIC) recently citing data showing global private capital assets under management (AUM) having tripled over the past decade, to reach an estimated US$14.6 trillion ($23.2 trillion). And within that, infrastructure is the asset class that is streeting all others in terms of growth, driven by a colossal and multi-pronged funding task.

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It can be difficult to get one’s head around the scale of the growth in private infrastructure as an asset class, Adam Reisler, partner at StepStone in the infrastructure and real assets team — which invests about $20 billion a year into private infrastructure — told The Inside Network’s Alternatives Symposium last month.

But the remarkable surge of the asset class is only just getting started.

“Private infrastructure was barely noticeable in 2000s as a growing asset class, but it has been by far the fastest growing asset class over the last two decades. It is growing in size at about 25 per cent a year and it continues to grow, and the expectation over the next five years is that it will remain the fastest-growing private market asset class in the world,” said Reisler (pictured).

“In 2010, the asset class stood at about US$200 billion in assets under management (AUM), and now it’s close to US$1.5 trillion. And, frankly, over the next couple years, I think it’s very realistic to assume that it will outpace both private debt and real estate. It’s pretty staggering to consider that this asset class, which didn’t really exist 30 years ago, will in the next couple of years be bigger than real estate.”

Reisler is well aware that it “seems like hyperbole” to talk about some of the figures involved in the growth of private infrastructure, but contends that the amounts are both “staggering” and realistic. “It isn’t just the capital that’s flowing into the space, but the need for capital, and we’re nowhere close to being able to meet that need,” he told the symposium. “Whilst we’re seeing a growing asset class, it is still not keeping up with the demand for investment in infrastructure, on the back of the tailwinds and megatrends in play.”

Reisler identifies three major trends in the private infrastructure market.

The first is that the need for “traditional” infrastructure – such as roads, bridges, water, and power – is growing. StepStone believes that transportation infrastructure is expected to require more than US$2 trillion ($3.2 trillion) of annual spending, to 2040, largely driven by growing demand, urbanisation and required decarbonisation initiatives.

The second is that digital infrastructure investment needs are accelerating rapidly, as well, with digital infrastructure becoming “one of the most active sectors” in infrastructure, on the back of the roll-out of fibre networks and their upcoming consolidation; the ‘densifying’ of existing tower networks and the build-out of small cells in populated urban areas; and the building of data centres prepared for cloud computing and generative AI. StepStone points out that installed US IT capacity is expected to more than triple from 25 gigawatts (GW) to about 80 GW by 2030, while data centre investment alone is expected to need more than US$500 billion ($794 billion) of private capital.

And the third is the clean energy transition thematic. Reisler took attendees through the “monumental” investment required for a cleaner energy grid, with StepStone estimating annual spending on physical energy assets at between US$8 trillion–US$9.2 trillion to 2050. The firm believes the US energy grid alone will remain ‘short’ electricity and require trillions of private capital annually to avoid shortfalls and support economic growth.

With technology-driven disruption in the fields of mobility, energy, water and waste, and digital infrastructure, the asset class is broadening significantly, along with its growth, Reisler said.  

“It’s not just AUM growth, it’s the nature of the opportunity set we have. Back in 2010 there might have been less than 200 managers, with maybe 400–500 different funds in market, and now we have probably over 1,000 different managers with probably about four or 5,000 funds. Over the last sort of decade or so, the opportunity set has massively expanded, and it’s much more complex, there are a lot more options, as well as a lot more managers.

“It used to be that if you were an infrastructure manager, you had a diversified infrastructure fund, and that was your solution for the market. But now, managers have their diversified fund, they have their Asia fund, they have their mid-market fund, in some cases they have their energy transition funds,” said Reisler. “It’s this growing marketplace, which is producing more and more opportunities for investors to to get exposure, but obviously, there is more complexity. There are roughly about 250 different funds raising in the next 12 months about US$750 billion ($1.2 trillion) of capital. It’s a very hard market to cover, and very nuanced.”

In particular, the disruption that is prevalent in the space is something around which investors struggle to get their heads, he said. “All the data points are one thing, on how incredible the need and the demand for capital are going to be, but the other thing people struggle to grasp is the disruption that is already present in infrastructure, and that will only increase.

“Historically, your parents’ infrastructure – the ports, roads, bridges – they all had low risk in terms of disruption. But the infrastructure of the future is going to look very different than infrastructure of the past, and we’re already seeing that today – think robotics at ports and transportation assets; roads are being built now to have managed lanes, using AI and machine learning;  are being used in ‘managed lane’ systems; and autonomous vehicles operate in a completely different way than they used to operate,” said Reisler. “Investors used to think they could buy a 30-year toll road, and just set and forget. I think a lot more active management is going to take place in the space, with this disruption.”

In a similar way, he said, digital infrastructure “was not really considered infrastructure, even six or seven years ago, but  now it’s probably, next to energy, the most significant component of infrastructure. Mobile towers, fibre-optic networks and data centres are the critical backbones of what of what we’re delivering – the massive acceleration from AI and generative large language models, the expansion that is expected to continue the need for digital infrastructure development, just in the US alone, is massive.”

In fact, Reisler said, he is often asked whether this opportunity set is “being overblown.” His answer is, not only is it not being overblown, “we still don’t know how we’re going to deliver it.”

“That’s true not only in energy, but in computing power,” he said. “In both cases, we don’t know how we’re going to deliver it, the need for investment is so great. That’s not a bad asset class to be invested in.”