Why BlackRock is betting billions on infrastructure

THE global economy is on the cusp of an “infrastructure revolution”, if Larry Fink is to be believed. The boss of BlackRock, the world’s largest asset manager, made the modest prediction shortly after announcing on Jan 12 that his company would acquire Global Infrastructure Partners (GIP) for US$12.5 billion. That company, led by Adebayo Ogunlesi, an old pal of Fink’s from their banking days, is the world’s third-largest infrastructure investor, behind Australia’s Macquarie and Canada’s Brookfield. Its assets range from Gatwick Airport in London to the Port of Melbourne. Ogunlesi and his fellow partners will collectively become BlackRock’s second-largest shareholder.

Fink is not the only one excited about the industry. On Jan 16, General Atlantic, a private-equity (PE) firm, confirmed reports that it would buy Actis, an infrastructure investor focused on emerging markets. In September, CVC, another PE firm, announced it was buying DIF, a Dutch infrastructure investor. Over the past decade, assets under management in infrastructure funds have increased almost five-fold, to US$1.3 trillion, according to Preqin, a data provider. Pension funds and sovereign-wealth managers have been lured in by the industry’s returns, which are both handsome and relatively stable. More than half of such backers surveyed by Preqin intend to increase the share of their portfolios allocated to infrastructure. Some of the larger among them now invest directly in these dull assets. Why, then, all the excitement?

The infrastructure-investment business took shape in the 1990s and 2000s. Western governments with growing debts began seeking out private investors to acquire – and help rejuvenate – ageing infrastructure from airports and railways to water pipes. Later, a growing assortment of companies from energy suppliers to telecom operators also turned to infrastructure investors to offload assets such as pipelines and cell towers, observes Sam Pollock, boss of Brookfield’s infrastructure business.