The provision and maintenance of roads, schools, and power plants have traditionally been considered the domain of the state. However, for years, increasing amounts of private capital have been flowing into these and many other infrastructure facilities. Public funds are becoming increasingly insufficient to finance these essential services, without which a society cannot function.

„Eighteen years ago, infrastructure was considered a rather boring asset class“, Tom Maher, head of infrastructure investments at asset manager Patrizia, says in an interview with Börsen-Zeitung.

A broader definition of infrastructure plays a crucial role in effectively addressing global challenges such as climate change and pandemics. This includes digitalization (fibre optic networks), wind and solar power plants, battery storage, and even hydrogen production. „What was formerly categorised as private equity now falls under infrastructure investments“, explains Maher. „The returns, in line with the risks, range between 8% and 15%, depending on the investment.“

Funds are provided either as equity or debt capital, and both financing types have grown rapidly in recent years. According to the latest annual investor survey conducted by the German alternative investments association BAI in 2024, around 85% of the responding institutional investors provided equity for this asset class – only slightly behind real estate. And investors plan to further expand their involvement.

Maher is responsible for these equity investments on behalf of Patrizia’s clients. „Through our Luxembourg funds, we finance companies with balance sheets of up to 1 billion euros, which are often family-ownedÄ, he explains. The asset manager offers growth capital as well as advisory services.

„We’ve done everything from airports and toll roads to ports, storage facilities, and social infrastructure", says Maher. Examples of Patrizia’s recent activities include last year's acquisition of a 40% stake in the previously listed Italian waste management company Greenthesis. Patrizia was also involved in setting up 400 fast-charging stations for electric vehicles in 200 parking lots of the German supermarket chain Tegut. The 140 million euros investment for the EV charging network came from Patrizia’s European Infrastructure Fund series.

According to Maher, transactions typically range between 50 million and 200 million euros, with 100 million euros being the standard investment size. „That can be anywhere from 40% to 100% of the equity capital", he says. Patrizia’s last infrastructure fund invested 500 million euros in equity, supplemented by 600 million euros from co-investments, bringing the total fund size to 1.1 billion euros.

The asset manager is currently raising capital for a new fund, which aims for total investments between 1 billion and 2 billion euros.

Debt investments in infrastructure are becoming increasingly popular. Nearly half of the institutional investors surveyed in the 2024 BAI Investor Survey were engaged in infrastructure debt investments – up from about 37% two years earlier.

Patrizia also invests in junior debt tranches of infrastructure projects through a Luxembourg-based fund, on behalf of its clients. Then debt programme operates in the high-yield segment, with a margin of 400 to 600 basis points and a total return of 7% to 10%. This entity is currently in fundraising and is expected to invest 1 billion euros. „We aim to issue about 15 investment tickets", says Maher. Examples include Greenvolt (owned by KKR), where Patrizia’s Infrastructure Debt Fund II invested 85 million euros in a 400 million euros facility, and the UK fibre-optic network provider Hyperoptic (also owned by KKR).

Munich-based Golding Capital Partners focuses on different aspects of infrastructure. Of the approximately 15 billion euros in assets under management, 6.7 billion euros is allocated to infrastructure. The firm offers both multi-manager funds – designed as stable investment vehicles for investors lacking the capacity to build their own infrastructure portfolios – and higher-yielding co-investment funds.

„We invest across the full spectrum of this asset class, from transport and logistics to energy, utilities, digital, and social infrastructure“, says Thilo Tecklenburg, Partner & Co-Head of Infrastructure Investments at Golding. The company focuses on Europe and North America. The current multi-manager fund has a target volume of 700 million euros, investing 50 million euros per fund. The co-investment fund launched in 2023 aims to reach 600 million euros by the end of this year, with an average investment size of 40 million euros. Golding targets net returns of 8% to 9% for the multi-manager fund and 10% to 11% for the co-investment fund.

„Our multi-manager funds typically have a lifespan of about 15 years“, explains Tecklenburg. „The first three years are used to acquire fund shares, and within roughly six years, the portfolios are fully built at the asset level. We usually hold assets for six to seven years before beginning to sell them. By years 12 to 13, the last assets are divested, with proceeds distributed directly to investors.“

Early exits are possible via the secondary market. „This is easier for co-investment funds than for multi-manager funds", he says. Investors can find buyers either through their own networks or – especially for larger amounts – via placement agents and brokers.

Tecklenburg notes that social infrastructure investments – such as schools, hospitals, childcare centres, and nursing homes – tend to involve smaller deal sizes, since there are only a few large-scale assets in this sector. And private capital can only be deployed where it is socially accepted. Many of these projects generate direct revenue, but that is naturally different in the case of schools.

Large-scale social infrastructure projects are often structured as Public-Private Partnerships (PPPs). The private investor is responsible for maintenance and upkeep according to public standards and receives availability payments in return.

Public educational institutions face a significant investment backlog, particularly in maintenance, modernisation, and new construction. „How can private and institutional investors collaborate with the public sector to contribute positively to educational infrastructure?“, asks Isabella Chacón Troidl, CEO of BNP Paribas REIM Germany. According to Troidl, three specialised funds in Germany are focusing on this area, in addition to Luxembourg-based investment vehicles.

„We are currently reviewing several schools in Germany", she says. While no deals have been finalised yet, BNP Paribas REIM has successfully completed school investments abroad, often through Forward Deals for private schools. A German special fund negotiates with a project developer planning to build a school. The project developer enters into a long-term lease agreement with the local municipality, which does not have to invest its own capital. The project developer receives the funds either at completion or during construction from the end investor via the special fund.

Chacón Troidl emphasises that municipalities need to know who the investors are. „Special funds are typically backed by insurers, pension funds, and pension schemes", she says.

Impact assessment is particularly important for social infrastructure investments. For schools, demand alone is not enough. Other questions arise: How can the school be made accessible to the wider community? Could it house a public library or offer language courses?

In France, BNP Paribas REIM has developed its own evaluation framework for its „Social Impact Fund“. In Germany, the ICG Institute for Social Governance, in collaboration with various real estate companies, is developing a similar framework for the industry. Comparability and transparency are crucial for such investments.“

BNP Paribas REIM is also highly active in healthcare. It Healthcare Property Fund, with nearly 1 billion euros in volume, has invested in 80 properties, including 12 in Germany. These include hospitals, clinics, and long-term care facilities.“

According to Chacón Troidl, multi-purpose use of real estate is essential. „Buildings should align with the concept of a 15-minute city", she says. In healthcare, this means a well-functioning facility includes assisted living, pre-hospital care, and a kindergarten. A kindergarten makes the location more attractive for employees. „In times of labour shortages, that’s a major competitive advantage.“