Infrastructure: Making inroads in the wealth channel

In this paper, we will examine investing in infrastructure and cover the following:

• What is infrastructure?
• How can we categorize infrastructure?
• Why is now a good time to invest?
• What lessons can be learned from institutions?
• What role does infrastructure play in client portfolios?
   

What is infrastructure?

In the past, infrastructure was narrowly defined as the basic physical systems of a business, region or nation and often involves the production of public goods or production processes. Examples of infrastructure include transportation systems, communication networks, electrical generation and distribution networks, sewage, water and school systems. While the facilities, equipment or similar physical assets like bridges and roads are essential to an economy, infrastructure also enables citizens to participate in and remain connected to  the social and economic community.

However, infrastructure is much more comprehensive than simply roads, bridges and airports that facilitate transportation from one place to another; it represents a vital part of our functioning economy. Today, the definition of infrastructure has broadened to include essential societal functions like power generation and distribution, energy storage and digital infrastructure such as data centers and fiber network.

Infrastructure projects can be private, public or a combination of both. These projects tend to be large in scale, often take multiple years to complete, and result in tangible projects that seek to naturally preserve real value over time with replacement costs.

Infrastructure investments are deemed essential services to a society or business sector with less elastic demand. That makes them less sensitive in general to the business cycle than public equities and fixed income. Infrastructure assets typically have limited competition due to high barriers to entry, often resulting in monopolistic or duopolistic market positions, which further insulates them from sensitivity to the economic cycle.

How is infrastructure categorized?

We can broadly categorize infrastructure into social and economic infrastructure.

Social infrastructure refers to assets where governments pay directly for the services provided, but users pay indirectly through taxes. They include assets such as public facilities—such as schools, hospitals, prisons and military installations—and public assets, such as parks, monuments and public transportation.

Economic infrastructure refers to assets where the user pays directly for the services provided. This includes transportation, such as toll roads, airports, railways and ports; energy, such as electricity generation, energy transmission, distribution and storage, and pipelines; telecommunications, including cell towers, transmission networks, fiber-optic cable systems; and water and waste, including water supply and wastewater treatment plans, distribution systems, and facilities.

Economic infrastructure can be further divided into the following subsectors:

Data infrastructure refers to the technology and networks that allow collection, processing and storing data as well as broadcasting and telecommunication services. Examples include cell towers, satellites, fiber-optic cable systems, data centers and wireless spectrum.

Power infrastructure, both traditional and renewable, consists of the systems necessary to generate, transmit and distribute electricity to users. This includes coal and natural gas-fired power plants, hydro, solar and wind assets, transmission and distribution systems, and battery storage.

Transportation infrastructure refers to assets used in the movement of people and goods, and includes airports, seaports, railways, toll roads and bridges.

Water infrastructure includes the supply, treatment and storage of water.

Waste infrastructure includes infrastructure for collection of waste and landfills, converting waste to energy, recycling or composting.

Why is now a good time for infrastructure investing?

In recent years, infrastructure has garnered a lot of attention in the United States due to the age and condition of the country’s roads, bridges and airports. Also, the COVID-19 pandemic illustrated the importance of reliable broadband connectivity. Both political parties have discussed the need to invest in our infrastructure for many years.

On November 15, 2021, President Joe Biden signed the Infrastructure Investment and Jobs Act¹ (IIJA), which allocated US$1.2 trillion to fund the rebuilding of roads, bridges, water infrastructure, internet and much more. The package also included new incentives and investment in developing infrastructure components such as US$65 billion to ensure every American has access to reliable high-speed internet.

The IIJA broadened the traditional definition of infrastructure to include digital infrastructure. Digital infrastructure requires a robust communications system—locally and globally—that connects, transmits, processes and stores an abundance of data. This infrastructure falls into three primary subsectors: wireless (macro cell towers, small cells, and spectrum), wired fiber networks (metro, wirelines, or subsea cables), and data centers (hyperscale or enterprise centers). With the projected growth in demand for internet and wireless data capacity, additional infrastructure supporting all subsectors is critical, and we believe this should create significant investment opportunities for the foreseeable future.

According to McKinsey, US$3.7 trillion of annual spending on infrastructure through 2035 would be necessary to keep pace with projected global economic growth, and an additional US$1 trillion annually² would be required to help reduce the carbon footprint of that progress. However, according to the latest estimates from McKinsey analysis, meeting net-zero targets will require spending US$9.2 trillion a year on physical assets between now and 2050, up from US$3.5 trillion today.³

While the United States and many of the developing countries have been slow to invest in their infrastructure, China and many other emerging markets have invested heavily in building infrastructure to connect people and grow their economies. Consequently, we believe that investing in infrastructure is a global story that includes both developed and emerging economies.

Unlocking growth: Global infrastructure investment and policy drivers

Infrastructure investment appears set to climb as governments and companies rethink supply chains. PitchBook predicts assets under management (AUM) in global real assets will grow 5.4% annually, reaching US$2.4 trillion by 2029—with about 75% in infrastructure (see Exhibit 3).⁴ Advances in artificial intelligence (AI), the energy transition and shifting global trade are driving increased demand for real assets and boosting investor confidence.

Favorable policy has in part supported the construction of real assets. Policy and regulatory developments are catalyzing infrastructure investment across regions and include:

• North America: US legislation, such as the Infrastructure Investment and Jobs Act and the IRA, has unlocked US$1.2 trillion in funding, creating unprecedented opportunities in clean energy, digital infrastructure and transportation. The CHIPS and Science Act also has helped drive a wave of construction across renewable energy and digital infrastructure. 
  Canada is looking to build a national trade corridor that connects the country from coast to coast to coast—to transport and export oil, gas, agricultural products, electricity, critical minerals and other commodities.⁵
• Europe: The European Union’s ELTIF 2.0 and the United Kingdom’s LTAF structures are accelerating institutional and private wealth access to infrastructure, particularly in renewables and digitalization. Germany’s €500 billion spending package⁶ underscores a renewed focus on energy and resilience.
• Asia-Pacific: Emerging Asia is targeting US$1.7 trillion per year in infrastructure investment through 2030,⁷ yet faces a large financing gap. Private capital has become increasingly crucial, especially in energy transition and digital connectivity. India announced the National Investment and Infrastructure Fund (NIIF) to mobilize long-term capital for infrastructure and strategic sectors in the country, particularly within private markets.
• Middle East: This region is witnessing rapid expansion in energy, transportation and urban infrastructure, driven by economic diversification, population growth and policy reforms. The Middle East is becoming a major hub for new energy infrastructure investment, with private markets driving growth. Governments within the Gulf Cooperation Council, especially Saudi Arabia and the UAE, are intensifying efforts on renewable energy, digital infrastructure, and sustainable development.
• Latin America: Latin America (including the Caribbean) needs to invest at least 3.1% of its gross domestic product (GDP) per year (equivalent to US$185 billion) by 2030 in the water and sanitation, energy, transportation and telecommunications sectors, so as to expand and maintain the infrastructure needed to make progress on meeting the infrastructure-related Sustainable Development Goals.⁸
• Partnerships across countries: For instance, the US-Japan Clean Energy and Energy Security Initiative (CEESI), established in May 2022, serves as a ministerial-level initiative to promote cooperation on clean technologies and energy security.
   

Mega-trends

There are a few long-term secular trends that should lead to the growth of infrastructure—namely underinvestment, upgrading, and resilience. Most of the developed world has underinvested in infrastructure. In the United States, the wear and tear on roads, bridges  and airports is evident. Decades-long underinvestment will take decades to catch up.

US digital infrastructure also needs dramatic upgrades, including cell towers, fiber networks and data storage. We believe the United States will need to make considerable strides to connect the world and provide a better flow of data. With the increase of work from home, high-speed internet is now required both at home and in the office.

Energy and environmental resiliency will likely shape the next generation. In our view, this energy transformation will need to expand beyond fossil fuels, with more reliable and sustain-able use of solar, wind, electricity and water, among others. New technologies will need to bring these solutions to a broader base in a more efficient and affordable fashion.

We believe that there are several key mega trends that will propel infrastructure growth globally, including increased infrastructure spending, energy transition, digitalization, urbanization and population growth. We also believe that there are four macro-themes  that will play out over the next several years.

1. Digital infrastructure: The proliferation of AI, cloud computing and remote work has driven exponential growth in demand for data and connectivity. As per Boston Consulting Group, in 2024 alone, investments in data centers soared to US$50 billion, up from US$11 billion in 2020.⁹ The digital infrastructure sector is evolving rapidly, with several key areas drawing particular attention:

• Data centers: There is increasing demand for data storage and processing capabilities.
• Fiber optics and towers: Expansion of high-speed internet and mobile connectivity is needed.
• The long-term contracts with blue-chip clients, high barriers to entry and sticky usage patterns are attractive to many investors. However, challenges such as power constraints, regulatory friction and public pushback in urban areas must be navigated.
   

2. Decarbonization and energy transition: The International Energy Agency estimates that annual global investment in power grids must double to US$600 billion by 2030 to meet climate targets.¹⁰ To achieve these ambitious goals, focused action is required across several key areas, including:

• Renewables: Investments in solar, wind and other renewable energy sources are needed.
• Grid modernization: Energy grids require upgrades to support renewable integration and improve power distribution.
• Battery storage: Ensuring grid stability is crucial in an era of rapid change. Battery storage can support fast-frequency response, supporting voltage, shifting loads and enabling greater renewable integration.
   

3. Deglobalization, energy security and critical supply chains: Infrastructure investors are navigating a world where supply chains are being rewired for resilience, particularly in the aftermath of COVID-19 and ongoing political uncertainty. The following sectors represent the key components that support these essential operations:

• Logistics: Transportation systems and storage and distribution facilities are critical for supply-chain resilience and movement of goods.
• Energy: Includes pipelines, processing facilities and storage capacity.
• Industrial: Assets that support domestic manufacturing and essential industries.
   

4. Demographics and changing societal needs: Population growth—projected to reach nearly 9.7 billion by 2050¹¹ —and accelerating urbanization are intensifying demand for infrastructure. Given these shifting demographics and societal needs, the following sectors highlight opportunities within the evolving infrastructure landscape:

• Social infrastructure: Includes hospitals, medical facilities, student housing and education platforms, and senior living facilities.
• Population transportation: Such as mass transit, tolls, airports and seaports.
• Utilities: Including energy distribution, water and waste treatment facilities.
• Life sciences: Includes waste-management systems, data centers and field stations.
• Food security and agri-tech: Includes transport, storage infrastructure, water management, energy and digital infrastructure.
   

These mega-trends are not only shaping new technologies but are also fundamentally altering the landscape for existing infrastructure assets. One key example lies within the utilities sector. As societies worldwide pursue decarbonization to combat climate change, utilities are on the front lines of this transition. Electric transmission systems have become key bottlenecks to decarbonizing energy grids as they must support integration of variable power sources into national grid. At the same time, the explosive growth of data centers—driven by increasing digitalization and cloud computing—demands significant upgrades to electricity networks, both to support higher loads and to ensure reliability.

Waste management systems are also crucial to advancing sustainability goals. Waste management companies are instrumental in fostering decarbonization and addressing the challenges of urbanization. Additionally, for countries transitioning toward reindustrialization or responding to deglobalization, waste management infrastructure enables the sustainable operation of new industrial plants and machinery, ensuring that growth does not come at the expense of environmental health.

Rail systems, ports and highways are being modernized to accommodate shifting trade patterns, the growing popularity of electric vehicles and the demand for efficient public transit in expanding cities. Water infrastructure is also facing renewed attention. As climate change intensifies droughts and floods, utilities are investing in advanced water treatment, distribution and conservation technologies. Smart metering, leak detection systems and the use of recycled wastewater are examples of digitalization and sustainability intersecting in traditional infrastructure.

Therefore, while major trends toward establishing new infrastructure are important, in our view, the enhancement and modernization of existing traditional infrastructure should also receive due consideration. Whether it’s through the modernization of electric grids, the circular economy of waste management, the transformation of transport or the resilience of water systems, these assets are being reimagined to meet the challenges and opportunities of a rapidly changing world.

How can we invest in infrastructure?

Infrastructure investments can be divided into “greenfield” and “brownfield.”

Greenfield investments refer to new assets developed from scratch with unproven demand sources. Greenfield investment strategies often carry high risks but also the potential for higher returns. They can provide capital appreciation at a greater rate than other infra-structure investments given the higher discount rates required relative to more conservative brownfield projects. This is due to unique risks of greenfield projects such  as environmental risk, entitlement risk, regulatory risk and construction risk. Further, value-add strategies that focus on enhancements and/or repositioning to existing assets can drive additional return opportunities. Recently, non-bank infrastructure debt has developed into a growing market and an additional tool for advisors and investors.

Brownfield infrastructure refers to existing infrastructure that is well-established and cash-flowing, with minimal capital expenditure (capex) required to maintain operations. Relatedly, brownfield rehabilitation infrastructure refers to existing infrastructure in need  of substantial capital expenditure to resume operations. Brownfield assets generally have lower risks, and their return potential can be lower than greenfield assets depending on the risk strategy employed.

Like real estate, infrastructure funds are typically divided into core, core-plus, value-add and opportunistic.

Core infrastructure strategies generally have lower risk but also lower return potential. This strategy is generally considered the most stable, focusing on essential assets with lower risk and more predictable performance. Core assets have typically experienced modest capital appreciation and are mainly chosen for their stable, predictable cash flow through long-term contracts. They are often held for long periods by institutional investors with low cost of capital, such as pension funds or strategic buyers.

Core-plus infrastructure strategies are like core assets but usually require higher capex or may have a smaller component of contractual revenues, making them more sensitive  to economic cycles. This approach typically involves assets with slightly higher risk and potential for moderate growth, offering a balance between stability and opportunity. Core-plus assets have typically experienced higher capital appreciation than core assets, but regular cash flow remains an important component of the investment thesis. They may also have more moderate holding periods of six to eight years.

Value-add infrastructure strategies usually require significant operational enhancements or capex as part of the investment thesis. Value-add strategies are primarily focused on growing the value of infrastructure assets through operational improvements, accretive acquisitions or expanding platforms. Strategies in this category aim for more significant improvements and growth, accepting moderate to higher risk for the potential of greater performance over time. Value-added assets also have relatively shorter hold periods of four to six years.

Opportunistic infrastructure assets have the highest risk profile of the main infrastructure strategies. These can include building new assets (greenfield) or buying assets in distress, requiring significant capital and operational enhancements to generate regular cash flow. Assets may also be characterized as opportunistic if their revenue streams are uncertain due to merchant or commodity exposure or because the asset is in the pre-commercialization stage. This strategy targets the highest growth opportunities, often involving the greatest amount of risk and variability, and is suited for investors seeking significant value creation with little to no income. Opportunistic assets typically have short holding periods of three to five years.

Infrastructure investments can be either equity or debt, and their risk-return profile can vary based on the above type of infrastructure funds.

What lessons can we learn from institutions?

Historically, global infrastructure investments have been limited, primarily to institutions and family offices. While there had been some listed (public) infrastructure funds available to the wealth channel, listed infrastructure has been more highly correlated to public equities than private infrastructure.

Institutions have historically invested in infrastructure due to their attractive risk-adjusted returns, their muted volatility and the ability to hedge the impact of inflation. Infrastructure projects tend to be long term in nature and often have provisions in their contracts that adjust for rising inflation.

Until recently, infrastructure was primarily only available to institutions and family offices in a drawdown structure, limiting the ability for advisors to access and allocate across their practices. Over the last several years, there has been a growing appetite for infrastructure investing from the wealth channel, and consequently, we have begun to see more products in more flexible structures.

Why allocate to infrastructure in today’s market environment?

The current market environment has presented several challenges, including elevated interest rates, periodic market shocks and geopolitical instability. Many advisors and investors are seeking investments that offer better risk-adjusted returns and can mitigate the impact of market shocks. We view infrastructure as a unique investment that has the potential to provide potential growth, stable cash flow, diversification, inflation hedging and low correlation to other assets.

• Growth: Infrastructure has historically provided attractive absolute and relative returns compared to traditional investments (see Exhibit 7).
• Stable cash flows: Infrastructure assets often operate under long-term contracts or regulated frameworks, which can provide predictable and stable cash flows.
• Lower volatility: Due to their essential nature and steady demand, infrastructure investments tend to have lower volatility compared to other comparable asset classes (see Exhibit 7).
• Diversification: Infrastructure investments can provide diversification through different stages of planning, developing, constructing and operating. For example, greenfield projects involve the creation of new infrastructure assets, while brownfield projects involve the redevelopment of existing assets. Additionally, Infrastructure encompasses a wide array of sub-sectors and asset types, each contributing to the overall stability and growth of the economy. As noted above, this diverse sub-asset class includes transportation-related infrastructure, digital-driven infrastructure, energy infrastructure and social infrastructure. Each sub-sector has a unique set of risk and return characteristics.
• Inflation mitigant: Many infrastructure assets have revenues linked to inflation, offering potential mitigation against rising prices.
• Low correlation: Infrastructure has historically exhibited low-to-negative correlation with other asset classes, such as traditional stocks and bonds, potentially enhancing portfolio diversification (see Exhibit 6).

Infrastructure investments exhibit distinct characteristics when compared to other forms of private investments:

• High barriers to entry: Significant initial capital investment is required, and assets are hard to- replicate.
• Inelastic demand: These types of investments offer essential services with relatively stable usage patterns.
• Monopolistic or quasi-monopolistic position: They often have high fixed costs associated with building and maintaining large networks or facilities. These high fixed costs lead to significant economies of scale, where the average cost per user decreases as more users are served.
• Regulatory: Given their often-monopolistic characteristics, due to capital intensity and high barriers to entry, governments often regulate infrastructure assets. Certain infra-structure assets have explicitly regulated pricing, meaning the revenue to the owner is defined and predictable.

Given today’s uncertain market environment, with high stock market valuations, stubborn inflation and rising geopolitical risks, we believe investors should consider adding an allocation to infrastructure. Our analysis has found that adding infrastructure to a traditional portfolio can increase returns, dampen volatility, hedge the impact of inflation and improve the Sharpe ratio. 

Exhibit 8: Impact of Private Infrastructure Investments on Portfolio Returns and Risk

As of September 30, 2025

Sources: MSCI Private Capital Solutions, MSCI Indexes, Bloomberg, Macrobond. Analysis by Franklin Templeton Institute. As of September 30, 2025. For illustrative purposes only. Notes: Quarterly data analysis from Q4 2004 to Q3 2025. The risk-free rate considered for the calculation of the Sharpe ratio is the average yield on the 3-month US Treasury bill during the period. Indexes used: Private Infrastructure: MSCI Private Capital Solutions’ fund search results for Private Infrastructure across all regions, Equities: MSCI All Country World Index, Bonds: Bloomberg Global Aggregate Index (Total Return). Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results. Important data provider notices and terms available at  www.franklintempletondatasources.com.