Infrastructure funding update - 2020

The conventional wisdom is that there are hundreds of billions of dollars waiting to finance infrastructure in developing countries like India. Accordingly, commentators pressure governments to relax various restrictions and court foreign capital. 

The reality though is very different. For a start, infrastructure forms a very small share of the vast volumes of global private capital. Further, within this too, the vast majority is destined for North America and Western Europe, with a really tiny amount focused on countries like India. Furthermore, even among the infrastructure focused private capital, between two-thirds and three-fourths are aimed at power generation, especially renewables. 

In fact, as the figures below will illustrate, the total volume of private capital willing to invest in infrastructure in India is no more than $2-4 billion, with the majority of this preferring renewables. There are no tens, much less hundreds, of billions waiting to flow into infrastructure.

This is a story that I have illustrated in great detail in this paper. Earlier posts on this are here and here. The belief that there are large volumes of foreign capital waiting outside to finance infrastructure in India is a narrative that endures despite overwhelming evidence to the contrary.

This reality is borne out in the Preqin infrastructure quarterly for Q3 2020.

The global unlisted (private) infrastructure focused fund raising status - about $24 bn raised in the third quarter.

The unlisted fund raising by geographies in Q3 2020 shows that there was just one Asia-focused fund raising money in the market in the third quarter. 

On the deals side, the quarterly report shows that Asia has a very small share of all the deals closed.

At the end of 2019, the dry powder available to invest in Asia, including China and Japan, was just $24 bn. 

As to the destination of this capital, power generation makes up the vast majority.

The amounts likely available for sectors like highways are a few hundred millions, for urban infrastructure even smaller, and for social infrastructure negligible. 

The total unlisted infrastructure assets under management show that the vast majority of it is in North America and Europe. 

At a macro-level, infrastructure forms a very small proportion of all alternative assets. In fact, it formed just 2.7% of the portfolios of public pension funds in 2020, up from 2.1% in 2018, and private pension funds allocated just 2%. 

In fact, the total universe of alternative assets under management touched $10.74 trillion as on October 2020.

The break-up under the different categories of investments shows that infrastructure was below 6% share.

Finally, infrastructure assets have returned 8-10% over 3-5 years, though it is lower than private equity and real estate at higher tenors.

The larger point here being that infrastructure is an asset category with its specific risk-return profile, which attracts only a small proportion of private capital investors.