Institutional investors are a financing cornerstone amid surging global demand for infrastructure and the need to upgrade and secure projects against climate change risks.
The increasing need for institutional backing is well timed, says Benjamin Abramov, partner and global head of infrastructure at Aon, adding increased risk from uncertain trade policies and inflation levels are causing investors to reconcile the needs of the returns found in private equity holdings or hedge funds.
“The biggest jump in the share is going to be out of private capital, which is predominantly pension investors, . . . [and] sovereign wealth funds, that are going to be the marginally higher financiers and equity holders of that type of project in the world.”
A 2025 report from Allianz Research projects it will take nearly US$4.2 trillion to modernize transport, energy and digital infrastructure globally. With unlisted assets under management in private capital increasing from US$25 billion in 2005 to US$1.5 trillion in 2024, private capital players are becoming a cornerstone of global infrastructure finance instead of merely filling gaps.
“Allocations are now segmented by risk, targeting steady, inflation‑linked cash flows rather than private-equity‑like upside. Most investors aim for six per cent to 10 per cent returns, consistent with our eight per cent to 10 per cent forward view,” the report said.
A baseline demand of regular replacement of existing infrastructure is now being pushed by energy transition objectives and digitization requirements as part of the artificial intelligence expansion, says Andras Vlaszak, director in global infrastructure advisory at KPMG Canada.
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“More and more of these big infrastructure projects could rely on their own revenues and the private sector could build them, finance them and reap the revenues out of their operations, which make this a profitable and interesting sector for institutional [investors] as well.”
For Canada’s economy, increasing de-globalization could mean opening the doors to more financing opportunities from institutional investors to fulfill domestic infrastructure needs, says Abramov.
“Every country is going to look at rewiring its economy from what used to be an old structure, . . . to a new kind of economic structure and that requires a lot of money to spend on these things.”
Given Canada’s current budget deficit, institutional investors could step in and pursue infrastructure projects that can generate their own revenue, says Vlaszak.
“When the market opportunity is there, I’m sure the Canadian pension funds will take a look at the investment opportunity. It just so happened that there was a lot more asset generation outside Canada in recent years. But with the macro environment changing and maybe the policy environment changing, that’s going to open new opportunities for pension funds.”
Still, any opportunity will have to make sense to investors and, with the level of sophistication from Canada’s biggest pension funds, capital is going to look for the best risk-adjusted returns at the sizes and access they desire, Abramov adds.
Looking ahead, he questions what the upper limit for pension funds will be relating to their comfort with concentration and liquidity risks in the infrastructure industry.
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