© Oliver Wyman

Joshua Zwick, Partner

MAY 11, 2017

INFRASTRUCTURE AS AN ASSET CLASS
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What is infrastructure?

Permanent facilities and structures that a society requires to facilitate the 

orderly operation of its economy

Social infrastructure

Transportation

Utilities

Communications

Types of 

infrastructure

 Power generation

• Renewables (e.g. solar, wind)

• Fossil fuels

(e.g. coal, natural gas)

• Nuclear

• Telecommunications

• Broadcasting

• Wireless

• Satellites

• Healthcare facilities

• Education

• Waste management

• Distribution and 

transport/ 

transmission

– Electricity

– Water

– Natural gas

• Airports

• Ports/terminals

• Roads

• Bridges/tunnels

• Rail
© Oliver Wyman 3

Funding infrastructure investment 

In the U.S., most infrastructure has been funded with municipal bonds– but 

that is changing

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

50

100

150

200

250

300

350

2007 2008 2009 2010 2011 2012 2013 2014 2015

US municipal borroworing for new projects (in $BN 2016 dollars)

New money raised in infrastructure funds as percent of municipal

borrowing

• While extremely successful in US, muni market is insufficient 

to fund maintenance of existing and building of required new 

infrastructure in the US 

– Fiscal tightening: Muni bonds adds directly to 

government debt and increasing fiscal pressures make 

increased issuance challenging1

– Revenue constraints: Lack of support for increases in 

user fees or taxes to support issuance

– Concentrated holders: “Cross over buyers”, who cannot 

benefit from tax exemptions (including life insurance 

companies) are essentially excluded from market

• Combination of funding needs with inability of traditional 

muni market to fund all of it has led to rapid rise in alternative 

forms of financing

– Public private partnerships (PPP)

– Transportation Infrastructure Finance and Innovation Act 

(TIFIA)

– Railroad Rehabilitation and Improvement Financing 

Program (RRIF)

– Direct pay bonds (e.g., Build America Bonds)

– Private activity bonds (PABs)

1. Wall Street Journal, August 8, 2016 

2. Sources: Thomson Reuters (based on available data on July, 2016), Preqin, Oliver Wyman analysis 

Trends in muni borrowing and fundraising in 

unlisted infrastructure funds2 
© Oliver Wyman 4

While the ultimate use of the funds may be similar, investing in 

privately financed infrastructure is a distinct type of investment

Muni financed Privately financed

Most attractive to investors 

that benefit from tax break

Attractive to investors that cannot 

benefit from muni tax break

Risk driven more by fiscal health of 

government, less by performance 

of specific assets

Risk driven more by performance of 

specific assets/projects or strength of 

established infrastructure companies

Most AA-rated When rated, most A-/BBB

Diverse market, but not 

idiosyncratic

Idiosyncratic market, but not 

as diverse 

Institutional access to market 

through direct holdings

Institutional access to market 

through many different channels
© Oliver Wyman 5

Typical infrastructure project involves many parties

Insurers can be debt or equity investors depending on their particular risk, 

return and liability management objectives

Government

Sponsors / equity 

investors Infrastructure SPV Lenders/Debt investors

Contractors Operator

Equity Debt

Subcontract Subcontract
© Oliver Wyman 6

Recap: Why infrastructure investment for insurers?

+ Long-duration make them an excellent ALM match for insurers’ long-dated 

liabilities

+ Relatively illiquid investments which insurers are naturally well-suited to hold 

given stable funding sources

+ Stable and secure cashflows due to regulatory protections as well as 

monopolistic or quasi-monopolistic market positioning 

+ Diversifying investments driven by distinct risk drivers producing low observed 

correlations with other asset classes 

+ Attractive risk-adjusted returns compared to public corporates and equity 

investments 
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