German asset manager DWS, previously part of Deutsche Bank, has just released its “Infrastructure Strategic Outlook 2024.”
Richard Marshall, head of infrastructure research at DWS, highlighted this month how the infrastructure market has begun to stabilize, and 2024 is likely to be a more positive market for fundraising and transactions than 2023 across the unlisted infrastructure market.
“Fundraising for unlisted infrastructure in the fourth quarter of 2023 was higher than the rest of the year combined,” Marshall said in a note. “This is indicative of both the challenges funds in the market have faced over the year in reaching their target size in what has been the most challenging year for fundraising in a decade, but also improving levels of comfort investors have with the market and their allocations heading into 2024.”
Marshall believes that infrastructure’s fundraising momentum should recover in 2024. “Infrastructure performed robustly over recent years of macroeconomic volatility and – with the recovery of listed markets reducing denominator pressures, as well as the continued underperformance of other real asset classes as well as the strong pipeline of capital deployment opportunities across greenfield and brownfield assets – investors are expected to return to the infrastructure market,” he said.
The move in January by asset manager BlackRock to buy a $100 billion infrastructure investment firm is also a sign of how significant this asset class is. It acquired all of Global Infrastructure Partners (GIP) for $3 billion of cash and about 12 million of common BlackRock stock as it seeks to tap into the $1 trillion infrastructure sector. See more commentary here and here.
Midmarket presents good value
Marshall highlighted how the midmarket opportunity set remains compelling given the ready pool of large cap investors needing to deploy capital into new assets, as well as the higher returns on offer. He believes that the energy transition, decarbonization, supply chain resilience, public transportation, demographic change and digitalization remain the long-term investment trends that will guide infrastructure investors.
Within these themes, in 2024, Marshall expects to see owners of assets in the transport sector eager to realize assets which have been impacted for a number of years by market dynamics. “Transport infrastructure assets were some of those most impacted by the Covid-19 pandemic, as movement by large parts of the global population were restricted and trade flows were disrupted,” he said.
“As a result of multi-year disruption, transport accounts for the largest share of the value of assets in the pipeline of deals in the global infrastructure market. Transport also accounts for the second highest volume of live deals, behind renewables,” he continued.
He thinks that transport assets could see increased activity in 2024, as assets kept off the market since the pandemic begin to emerge. Nevertheless, in both the US and Europe, political risk remains a key area to monitor, he added.