Private capital is increasingly needed to fund the vast infrastructure investment requirements of many Organisation for Economic Co-operation and Development countries today, according to Daniel Sausmikat, capital formation partner at InfraRed Capital Partners, during a session supported by SLC Management at the Canadian Investment Review’s 2025 Endowment & Foundation Investment Forum.
This form of funding was first used for social and transportation projects, he said, and eventually moved to energy, utilities and — more recently — digital infrastructure. Looking ahead, he highlighted the importance of mid-market value-add infrastructure investment to deliver the facilities and assets required by emerging trends such as digitalization, demographic change, regeneration and decentralization.
Read: How institutional investors are approaching digital infrastructure assets
Mid-market value-add infrastructure investing is defined by a path of “building to core” or — as Sausmikat described it — creating new, or substantially expanding, infrastructure assets, which will deliver stable and long-term income. Typically, this is delivered in individual investments within five to seven years, after which mid-market value-add investors exit, typically to income seeking buyers or larger players looking to consolidate.
“It’s really about an organic strategy focused on delivering value by building and scaling the underlying proposition itself, rather than looking to acquire existing businesses with limited growth or through external measures such as major restructuring or significant leverage.
“One particularity about mid-market value-add investment is that the buildout of projects and portfolios is often initially funded with equity only. As you grow and expand the proposition, and create some meaningful cashflows, you may introduce some debt over time.”
Sausmikat also suggested infrastructure investments use proven technology and fund hard assets within an industry that’s established. As well, he noted managers will typically look for monopolistic features in specific investments, which provide for high barriers of entry. “Think about a telecommunications tower, for example. Once it’s built in a certain location and you have contracted with several carriers, it’s unlikely that someone is going to build a competing tower right next to you.”
From a portfolio allocation perspective, he said he sees the role of mid-market value-add infrastructure investment as a true alternative to private equity. Indeed, it compares favourably to private equity in its low systematic risk, he added, since propositions are often financed with modest or no debt.
“While there is operational effort involved in developing and building out the infrastructure, . . . it has, by no means, as significant the operational complexity, volatility or short-term market exposures, which is common for private equity.”
Read more coverage from the 2025 Endowment & Foundation Investment Forum.