By Amey Stone
Private infrastructure, a flavor of alternative investment that was once available only to institutional or very wealthy investors, is rapidly gaining steam.
A recent BlackRock survey of the investment offices of very wealthy families found that 32% are planning to start or expand positions in infrastructure investments. And there is an increasing number of such funds available to individual investors, mainly through financial advisors, such as the Brookfield Infrastructure fund, the Apollo Infrastructure Co., and the Stonepeak-Plus Infrastructure fund. BlackRock bought infrastructure manager Global Infrastructure Partners last year, combining it with its own sector funds to create a $183 billion infrastructure behemoth. It is expected to launch new private infrastructure funds for its wealth management channel.
Investors' infrastructure excitement is fueled in part by artificial intelligence, which requires more data centers and energy, as well as the global need for more roads, airports, pipelines, and cellphone towers. Assets are concrete (literally and figuratively), essential, and hard to build, so they gain value over time and offer investors inflation protection.
"In the past two to three years, with inflation and a volatile macro environment, infrastructure came through with flying colors," says Luke Taylor, co-president of Stonepeak. "That's why it's so front and center today." Private funds tend to offer yields in the mid-single digits, with capital appreciation on top of that. Research firm Preqin forecasts investment returns, net of fees, of around 11%.
The conservative and income-focused strategies of the private funds differ from most of their publicly traded counterparts, which are squarely focused on stock appreciation, often derived from investments in suppliers to infrastructure firms. Fidelity Infrastructure's (ticker: FNSTX) top holding, for example, is Nvidia. The biggest infrastructure exchange-traded fund, the nearly $9 billion Global X US Infrastructure Development $(PAVE.UK)$, has returned 25% a year for the past five years but yields less than 1%. Its top holding is jet component manufacturer Howmet Aerospace. BlackRock's iShares Global Infrastructure ETF (IGF), which yields about 3%, is probably the closest thing to private strategies in its current lineup.
Jay Hatfield, CEO of Infrastructure Capital Advisors, recommends that investors looking for income avoid ETFs that invest in suppliers. Instead, he suggests replicating the more conservative profile of the private funds by buying sector funds that own utilities or energy pipelines. His firm's InfraCap MLP ETF (AMZA) yields 8%. The firm also has a preferred stock ETF that is about half invested in infrastructure preferreds, Virtus InfraCap U.S. Preferred Stock $(PFFA)$, which yields 10%.
Infrastructure mutual funds and ETFs have the advantages of more liquidity, lower fees, and more transparency. Rob Thummel, senior portfolio manager at energy investment firm Tortoise Capital, says the biggest pipeline companies are publicly traded, so there's no need to offer access through private vehicles. Tortoise Energy Infrastructure $(TYG)$, a closed-end fund, has a 10.2% distribution rate. Energy pipelines offer value, but like other high-yielding equities, are very interest-rate sensitive, notes RSD Advisors' Richard Daskin.
These new alternative funds that invest in private infrastructure are often structured to allow withdrawals only at monthly or quarterly intervals and may have other restrictions. Investors can reap higher yields from what the industry refers to as an "illiquidity premium." Talk to a financial advisor about investing in private companies in any sector, and you will likely hear that term bandied about.
Write to Amey Stone at amey.stone@barrons.com
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July 11, 2025 03:00 ET (07:00 GMT)
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