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Investors can bridge infrastructure funding gap

Investors can bridge infrastructure funding gap

Jessica Yun
— 1 minute read

The global infrastructure industry has singled out lack of funding as one of the sector’s biggest obstacles – but new funding models such as public-private partnerships can help bridge the shortfall, says AECOM.

A new report on the global infrastructure industry by AECOM revealed that more than a third (39 per cent) of the 500 senior industry decision-makers surveyed named a lack of public funding as a major obstacle to civil infrastructure that was capable of “keep[ing] pace with society’s demands”.

According to the report, “most countries are not investing nearly enough”, given the annual shortfall of US$350 billion in infrastructure investment across the globe.

This carried implications for resources, health and safety, ranging from wasted drinking water, wasted hours in traffic congestion as well as exacerbation from technological and climate change.

But “innovative funding models” that engaged the private sector could create a new way of bridging the funding gap.

“One popular solution, gaining recent momentum in the US, is to use public-private partnership models: approximately four-fifths of respondents select P3s as a way to improve traditional procurement,” the report said.

Public-private partnerships would lessen the burden of “life-cycle costs of infrastructure” from public budgets and at the same time “create investable assets for the private sector”.

“Private investment in infrastructure, in partnership with the public sector, can motivate accountability in the delivery of critical assets, stretch public dollars and help local, state and national governments deliver highways, bridges, ports, airports and other infrastructure faster and cheaper, and ensure that they are properly maintained,” the report said.

It also indicated that institutional investors would play an increasingly key role in this type of funding model, with major sovereign wealth funds drawn to the infrastructure sector for “the scale it permits, since individual transactions can draw hundreds of millions in equity capital”.

“Investment management firms helped catalyse the infrastructure allocations of institutional investors and have responded to the growth in such allocations with more and ever-larger funds,” said the report.

By the end of Q1 2017, total assets under management of private infrastructure funds came to US$426 billion and looks set to “increase substantially” thanks to “both supply and demand factors”.

“On the supply side, several US$10 billion-plus funds have been raised or are presently being marketed, while on the demand side, 53 percent of institutional investors surveyed plan to increase their allocations to the asset class,” the report said.

Public-private partnerships are already “quite evolved’ in certain parts of the world, such as Australia, the UK and Canada, and will likely become more prevalent in the US.

Respondents from the Asia-Pacific region in particular were more bullish (48 per cent) about trialling this funding model than their European counterparts (28 per cent).

 

Investors can bridge infrastructure funding gap
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