Private Equity

Real Assets 2.0: Riding the Next Wave in Infrastructure Investing

July 2023 – 6 min read

The new generation of infrastructure is creating opportunities with characteristics similar to those of traditional infrastructure—yet often at values the market may not fully recognize.

The Evolution to Real Assets 2.0

Infrastructure investing has long been characterized as involving assets that provide an essential service. These investments are typically regulated and consist of a single asset or project, with long-term contracts backed by an investment grade counterparty. Further, the majority of the return profile of these assets is driven by current yield. Given the downside protection, contracted cash flows, and current yield, such investments are highly sought after by infrastructure managers and command high valuations.

Over the past decade, however, a new range of infrastructure investments has emerged involving what we call Real Assets 2.0. Deals in this new category comprise infrastructure assets that benefit from structural and technological tailwinds, and exhibit compelling risk mitigation. Compared with deals involving the first generation of real assets, Real Assets 2.0 deals generally involve a company or project that is more distributed in nature, smaller in scale, and composed of multiple assets. Such companies and projects are characterized by a conservative capital structure (often with modest or no leverage used during the expansion phase), fixed-rate debt with medium- to long-term maturities, and contracted cash flows. The company or project generally has an existing asset with an associated long-term contract, which provides the potential for downside protection, but requires additional growth capital to build out the platform. Ultimately, the goal is to scale the platform and sell the company or project up-market to a buyer with a lower cost of capital.

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Patrick O’Hara

Managing Director

Russell Metcalfe

Senior Director, Diversified Alternative Equity

Dave LaBrie

Senior Director, Diversified Alternative Equity

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