Inflation-Wary Investors Flock To Infrastructure Funds Amid Historic Shifts In Price
Infrastructure funds are seeing a rush of capital as investors seek to combat runaway inflation.
Power plants, telecom towers and data centers are among the beneficiaries of this investment, with companies like KKR and Brookfield Asset Management contributing $17B and $15B, respectively, to the $130B raised by infrastructure funds so far this year. That represents a 20% increase over the record-setting $25B raised last year, according to the Wall Street Journal.
Interest by private equity firms in public infrastructure is expected to grow as investors look for safe havens from price volatility. Assets such as utilities, toll roads and ports are highly valuable during inflationary periods because cost increases can be passed through to customers, per the WSJ.
"Global demand for building and upgrading critical infrastructure, as well as supporting responsible energy transition and growing broadband access, requires funding far in excess of public sources, which provides a big opportunity for private capital," KKR Head of North American Infrastructure Brandon Freiman said in a statement.
Inflation dipped to 8.5% in July after hitting a four-decade high of 9.1% in June, per the WSJ. The MSCI AC World Infrastructure Index has better withstood price fluctuations than the broader market, generating a total return of 2% measured in U.S. dollars this year through Monday, according to FactSet data reported by the WSJ. The overall MSCI AC World Index declined 11%.
A growing focus by investors on ESG and sustainability will also propel demand for infrastructure, Gordon Bajnai, head of global infrastructure at Campbell Lutyens & Co., told the WSJ. The International Energy Agency estimates annual investments in energy infrastructure and technology need to increase from more than $1T to more than $4T by 2030 to achieve net-zero emissions by 2050, per the WSJ.