Market Research

Infrastructure Quarterly: Q4 2023

By: Tania Tsoneva and Jake Parker Allen

December 14, 2023 15 Minute Read Time



As the conflict in the Middle East adds to ongoing geopolitical tensions, the global macroeconomic environment remains highly volatile. Central banks have paused rate hikes since September, however, core inflation remains sticky. Macro uncertainty has weighed on infrastructure mergers and acquisitions (M&A) and capital raising. Yet, we believe that infrastructure is well-positioned in a macro cycle defined by stagnating economies and structurally higher inflation.

In this Q4 edition of Infrastructure Quarterly, we highlight the rising investment requirements to reinforce power grids and cope with double digit demand growth by 2030. The electrification of transport and monumental uptake of electric vehicles (EVs) will further supercharge electric utility growth. The high interest rate environment is escalating funding and operating costs, sharpening the attention on companies’ leverage and consumer bills. We also examine the elevated disconnect between listed versus unlisted valuations of digital infrastructure.

Q3 fundraising bump

Following a quiet first half of the year, fundraising volumes received a welcome uptick in the third quarter. With $19.7 billion raised in Q3, year-to-date (YTD) fundraising reached $27.3 billion (Figure 1). While a marked improvement, 2023 fundraising remains the lowest since 2015.

Renewables and energy transition funds accounted for almost 95% of sector-specific fundraising through the end of Q3 (Infrastructure Investor). Sustainability is particularly prevalent across European funds; FTSE Russel’s 2023 Global Asset Owner Survey found infrastructure to be the asset class with the most sustainable investment implementation and considerations in the EMEA region this year.

The sizable M&A decline this year has likely played a role in the fundraising squeeze. With most infrastructure funds being closed-end, inopportune exit valuations reduce the capacity to invest in new capital raising. There exists a broad correlation between M&A activity and fundraising volumes since the year 2000 (Infralogic).

Rising interest rates have also benefitted debt funds, which have been responsible for over half of market capital raised this year (Infralogic). With fixed income the top asset class for sustainable investment allocations (FTSE Russell), renewables are likely to remain a key focus for infrastructure debt raises next year.

Figure 1: Historical infrastructure fundraising ($ billions)

Figure 1_v2

Source: Infrastructure Investor Fundraising Report Q3 2023.

Market Performance

The performance gap between listed and unlisted infrastructure widened in Q3. Following a strong 2022 against a backdrop of deteriorating global equites and a relatively stagnant H1, the FTSE Global Core Infrastructure 50/50 index fell -7.8% last quarter. Listed markets have primarily reflected the impact of rising interest rates on valuations as funding costs rise for publicly traded, relatively highly-leveraged infrastructure companies. Several sector-specific headwinds also persist; towers have seen their primary customers, telecoms, moderate network investment plans, while airports and toll roads experience regulatory challenges through concession taxes in Europe and APAC. Despite challenges, fundamental characteristics and long-term, structural growth drivers remain intact despite the recent drop in valuations (see CBRE IM Listed Infrastructure: A premium asset class on sale).

Unlisted infrastructure continues to demonstrate stable performance over time (Figure 2). One-year returns for both the MSCI Private Infrastructure and Cambridge Associates Global Infrastructure indices remain in positive territory through Q2 (MSCI +9.3%, CA +8.2%.). The EDHEC Infra300 index (equally weighted, local currency) has returned 10.5% this year through November 30, in part due to the index rebounding after registering a considerable dip in H1 2022 when the war in Ukraine began. Falling equity risk premia have driven the net asset values (NAV) of global unlisted infrastructure companies over the past year, offsetting interest rate impacts.

Figure 2: Infrastructure, bonds and equities annualized total returns (unlisted to Q2; listed, bonds & equities to Q3)

Figure 3_v3

Source: Refinitiv, Factset. Unlisted infrastructure: Cambridge Associates Global Infrastructure Index in USD, net of fees as of Q2 2023. Listed infrastructure: FTSE Global Core Infrastructure 50/50 index in USD as of Q3 2023. Bonds: Bloomberg Global Aggregate Fixed Income index in USD as of Q3 2023. Equities: MSCI World index in USD as of Q3 2023. For illustrative purposes only. Current market conditions differ from prior market conditions; including during prior periods of stress and dislocation. There can be no assurance any prior trends will continue.

Deal Activity

Decarbonization and digitalization support subdued dealmaking

Mirroring the fundraising environment, deal activity remains relatively quiet compared to recent years. Through the end of Q3, there has been a 24% annual contraction in deal values and a 20% drop in volumes in 2023. Driving this decrease has been a global M&A slowdown, with acquisitions falling 47% year-over-year to offset a 27% rise in greenfield financing volumes.

Despite the M&A decline, project financing has displayed resilience across both greenfield and brownfield projects, especially renewables, which accounted for 28% of project finance deals. As mentioned in the Q3 Infrastructure Quarterly, liquified natural gas (LNG) terminal developments continue to dominate large-ticket transactions as concerns over energy security persist.

North America, specifically the U.S., is on course to finish 2023 as the strongest infrastructure market. As of November 2, U.S. deals reached $250 billion across 581 deals; Europe follows at $234 billion with 1,100 deals, while Asia (excluding Australasia) sits at a distant third with 260 deals totaling $58 billion. All values based on Infralogic.

Figure 3: Q3 deal values by region and sector ($ billions)


Source: Infralogic as of November 2, 2023.

Market Themes and Notable Transactions

Despite the deal slowdown, several notable transactions throughout Q3 were completed. Stonepeak agreed to pay €730 million (24x expected 2024 EV/EBITDA) for a 49% stake in Cellnex Nordics which includes over 4,500 towers and telecom sites across Denmark and Sweden. Proceeds are expected to help reduce Cellnex’s debt and aid the company’s goal of attaining investment grade ratings.

In the energy sector, the $19.2 billion Rio Grande export LNG project in Texas reached financial close in mid-July following several mega-deals in the U.S. LNG terminal space this year. The facility will sell LNG for up to 20 years to a group of energy company offtakers via sale and purchase agreements. Finally, after numerous  delays, the $6.5 billion Hai Long 2 and 3 wind farms off the coast of Taiwan reached financial close in mid-September. The largest long-term offshore wind project financing to date in the APAC region is an encouraging sign for the offshore wind industry, which has struggled with project delays, cost overruns and cancellations this year.

Q&A: Infrastructure debt fundraising

In the Q4 edition of Infrastructure Quarterly, we speak with Riz Malik, Co-Founder & CEO of Realfin, about the opportunities and challenges for infrastructure debt fundraising.

Riz Malik_Horiz-Thumbnail_v3

While infrastructure fundraising and M&A activity have experienced a substantial slowdown this year, Realfin data reflects a growing proportion of capital raised by debt strategies in Q3. How do you view the outlook for infrastructure debt versus equity fundraising and implications for investors?

Infrastructure debt has arguably become the single most interesting real assets strategy in recent months. Unlisted infrastructure debt funds secured a significant 31% of the $21.14 billion in capital raised in Q3 2023 (up from 14% and 10% in Q2 and Q1 respectively), according to Realfin data. It adds to plenty of other evidence that points to greater demand for infrastructure debt. 27% of global investors are considering infrastructure debt investments in the coming 12 months making it the most in-demand strategy according to investor intentions expressed in Q3 2023. We believe this could be an important moment for a new, third wave of investors that have been wanting to deepen or start with this asset class to take action.

How is the competitive landscape evolving within infrastructure debt fundraising? Are there any emerging trends that fund managers are employing to attract capital?

Investors in the market for external managers have their pick, with the number of unlisted debt products and managers about double what it was a decade ago. As we speak, there are 132 unlisted vehicles— though a third are open-ended— seeking capital that have infrastructure debt as part of their strategy. Every type of debt strategy from mezzanine to senior debt to direct lending is available. An important recent trend is increasing sponsor openness to private, alternative options. Awareness among sponsors of alternative routes to traditional lending has never been greater, supported by service providers proactively ensuring their clients are aware of private options. This is also a reminder, however, that the competitive advantage is held by managers with deep, long-held relationships in the market at the borrower level.

With growing interest in renewables and sustainability-focused funds, do infrastructure debt strategies present any unique opportunities or challenges?

A key challenge in infrastructure debt today is that wind and solar are no longer automatically desirable in and of themselves. The day was always going to come that sufficient capital would have poured into those segments to result in economies of scale pushing down prices and returns —and that’s where we are now. Debt fund managers in the know are not exactly eschewing wind and solar but are sharply aware the spreads today are nothing like what they were 10 years ago. In terms of opportunities, there is intense interest among LPs in thematic investment strands such as energy transition, decarbonization, electrification, energy efficiency and natural gas if one is willing to extend definitions.

Power and Utilities

The power of electrification calls for extensive investment to stabilize our energy grids. From 2024, electrification is set to increase power demand in Western Europe by 3%-4% per year, reaching cumulative demand growth of ~20% by 2030 and ~60% by 2040 (S&P Global Ratings). With current demand having fallen to a 20-year low in 2023, mounting CAPEX requirements are magnifying the focus on utility leverage parameters and overall financial stability.

Energy security concerns on the back of demand growth projections were further amplified by the energy crisis last year. The EU raised its target for the share of renewables in the 2030 energy mix by almost a third, while governments in Germany and Spain announced extra revisions beyond bloc minimums. The U.K. Energy Act, enacted into law at the end of October, supports energy security, affordable customer bills and the energy transition.

U.S. utilities have had a challenging year. Rising inflation, interest rates, climate event restoration costs and energy transition capex have increased operating costs and driven rate case filings. Poor share price performance has also reflected regulatory risk concerns around cost recovery, with customer affordability still front and center following soaring bills in 2022. Energy transition capex continues to drive capital spending, which is expected to reach almost $200 billion this year (Figure 4). 

Figure 4: Rising capital expenditures for North American regulated utilities ($ billions)


Source: S&P Global Ratings, Regulatory Friction Is Constraining Cost Recovery For North American Investor-Owned Utilities, November 6, 2023.


Renewables was the sole infrastructure sector to register year-on-year deal growth in the first nine months of 2023. Renewables account for 37% of private infrastructure investment market share, continuing to reach new heights as the global push to net zero solidifies energy transition assets as clear beneficiaries of decarbonization policy. Global renewable energy investment achieved a six-month period record high of $358 billion in the first half of 2023, a 22% rise from the same period last year as venture capital, private equity and new public market equity all recorded double-digit growth (BNEF).

The U.S. is emerging as a leading global hub for clean energy deals. The Inflation Reduction Act has proved a powerful catalyst, attracting $350 billion of capital flows into U.S. utility-scale clean energy projects since August 2022 (American Clean Power Association as of November 2) and leading North American renewables investment to surpass Europe in Q3 (Figure 5). While still a small proportion of the energy mix, lucrative tax credits and funding schemes are improving the viability of emerging clean technologies, driving strong annual growth in Q3 deal values for hydrogen (+451%), EV infrastructure (+248%) and battery storage (+46%). All values based on Infralogic.

Figure 5: Q3 energy transition investment by selected clean technologies & region, 2019-2023 ($ billions)

Figure 5_v2

Source: Infralogic as of November 2, 2023. Regional volumes include Energy (biofuels, biogas, gas smart meter, hydrogen, LNG export & import terminals), Environment (carbon capture), Power (battery storage, electricity smart meter, gas fired, nuclear), Transport (EV charging) and Renewables. Key technology volumes include selected technologies and do not constitute all energy transition investment.
Despite rapid progress, notable challenges remain. Supply chain and financing risk were cited as key obstacles to European energy investment by over 70% of respondents to CMS and Mergermarket’s European Energy M&A and Investment Outlook survey (October 2023). Surging demand continues to exacerbate inflated prices for renewable technology components and raw materials, most clearly illustrated in the perfect storm hammering the offshore wind industry. Rapidly increasing capital costs due to interest rate trajectories, along with supply chain disruptions and input cost inflation have caused several leading developers to cancel projects and undergo significant impairments. Moderating inflation will likely help ease developer pain and support faltering global greenfield renewable volumes, while improved energy investment conditions are expected next year by 87% of corporates and 67% of private equity executives, according to CMS and Mergermarket.


Post-pandemic travel recovery is nearly complete. Industry-wide air passenger traffic recovered to 96% of 2019 levels in August, while domestic passenger traffic exceeded pre-pandemic levels by 9%, according to the International Air Transport Association (IATA). Recovery trends have diverged between domestic and international traffic this year; international travel growth has been positive although sluggish in relative terms. Global cargo kilometers per tonne registered annual growth for the first time since February 2022 while cargo capacity maintains double-digit expansion. The outlook for air cargo is uncertain, given its historic correlation with industrial production and global trade, both of which are in decline (Oxford Economics).

Labor markets are a key pillar to the transport industry. With unemployment rates in advanced economies near historic lows, around 4.5% in mid-2023 according to the World Bank, consumer incomes are relatively healthy. While this supports demand for air travel, skill and staff shortages continue to impact the industry through operational disruptions. Rising labor costs will likely present financial challenges to airlines and airports as traffic recovery to pre-pandemic levels begins to lose momentum. Nominal wage increases have outpaced core inflation in recent months with various rail and auto union strikes targeting higher pay.

In the U.S., EVs are set to become a major beneficiary of the Inflation Reduction Act. S&P Global forecasts that EV sales (including plug-in hybrids) will increase at a compound annual growth rate of over 30% through 2025, boosting electricity sales and utility industry credit quality. Electrification requirements vary by state. California currently sells around 40% of all zero-emission vehicles in the U.S. due to various grants, tax incentives and new vehicle mandates, though more states are contemplating similar mandates to accelerate EV adoption. Provisions within the act stimulate rapid EV sales growth to reach around one in five vehicles sold by 2050 (Figure 6). Based on U.S. Energy Information Administration (EIA) projections, EVs reach performance and cost parity with gasoline vehicles in the luxury market, though remain less competitive in the mass market.

Figure 6: EV share of U.S. light-duty vehicle sales under the Inflation Reduction Act


Source: U.S. Energy Information Administration, Annual Energy Outlook 2023 (AEO2023), March 16, 2023.

Digital Infrastructure

Cloud, AI and 5G adoption are among the key priorities for digital infrastructure operators. Funding costs remain the risk focus as central banks maintain the higher-for-longer stance on interest rates. Digital underperformance in the listed market continued in Q3, while private valuations hold steady as of Q2, the last reported date (Figure 7).

With heightened financial regulator scrutiny on the carrying cost of bank debt in the high-rate environment, tower dealmaking is being led by private equity and debt. Private deals accounted for 85% of tower company sales and strategic investments between Q2 2022 and Q2 2023 (S&P Capital IQ).

Despite underperformance in the listed towers market over the past year on the back of funding cost concerns (-21% to Q3), high valuations in recent private sales reflect the enduring draw of pricing power and steady long-term cash flow fundamentals, as well as seller de-leveraging strategies.

Data center companies reported strong Q3 results throughout earnings season. Limited supply and steadfast demand as enterprises continue to outsource workloads support robust pricing and interconnection growth. De-leveraging remains in focus to enable capex requirements demanded by AI applications and the ever-rising demand for data, while power and supply constraints are constraining further revenue growth.

Figure 7: Digital infrastructure performance vs wider market, annualized total returns (private to Q2, listed to Q3)

Figure 7_v2

Source: MSCI, Factset. Unlisted digital & global infrastructure: MSCI Global Quarterly Private Infrastructure Asset Index in USD as of Q2 2023. Listed digital & global infrastructure: FTSE Global Core Infrastructure 50/50 Index in USD as of Q3 2023.
AI is beginning to meaningfully contribute to cloud revenues and is expected to drive growth from 2024-2025. Enterprise information technology (IT) spending has been cautious this year as high interest rates and geopolitical uncertainty weighed on budgets set early in 2023 when recession risk was greater (S&P Capital IQ). Underpinned by AI investment, hyperscale capex growth is anticipated to accelerate to midcycle levels in 2024.

Fiber also retains the tailwinds of digitalization, albeit with certain challenges. Government subsidy programs, such as the U.S. Infrastructure Act’s Affordable Connectivity Program and the EU’s Connecting Europe Broadband Fund, aim to help bridge the digital divide and support wireless operator rollout plans. In 2018, an estimated 18% of the world population lived outside covered broadband areas decreasing to 5% in 2022 (GSMA 2023). Significant gaps remain across coverage, usage and connectivity, while moderating inflation is helping to partly offset elevated capex and funding costs.

Digital infrastructure has evolved alongside infrastructure as an asset class in recent years. Core infrastructure investments, essential services with long-term, stable cash flow visibility and inflation links, were historically either utilities or Public Private Partnerships (PPPs), whereas today, sectors such as renewables and digital have entered the frame. High quality digital assets with long-term contracts and creditworthy off-takers are now staple allocations in investor portfolios. From a market share of 5% in 2015 to 18% as of December 2023, digital infrastructure investments have evolved to form a significant proportion of the private infrastructure market (Figure 8). With digital infrastructure assets underpinning global telecommunications, media, technology and certain applications within the energy transition, digital tailwinds blow steady.

Figure 8: Sector market share by global deal values in privately funded infrastructure investment

Figure 8_v2

Source: Infralogic as of December 4, 2023. Transactions include greenfield, M&A, privatizations and take privates; excludes additional financings, nationalizations, public offerings and refinancings.


The investment outlook for infrastructure remains firmly on track. The high interest rate environment has elevated funding costs and sharpened the focus on leverage and consumer bills, yet unlisted valuations hold steady as the fundamental characteristics of infrastructure assets continue to demonstrate their merits. Fundraising and M&A are experiencing a relatively quiet year, firmly focused on the energy transition and infrastructure debt with managers looking to investor allocation resets in Q1 2024. Deals are dominated by the U.S. and have similarly been centered around the renewables, energy and digital sectors. We also highlight the rising investment requirements needed to reinforce power grids given double-digit demand growth to 2030, particularly within Western Europe, as well as the rapid uptake of electric vehicles in the U.S. driving electricity demand. The outlook for digital infrastructure investment remains attractive, supported by the dual tailwinds of AI and expanding digital coverage.

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