Airplane Taking Off

Infrastructure Secondaries: Taking Off

Following the rapid growth seen in the infrastructure primary market over the last decade, secondaries are growing sub-segment within the infrastructure asset class, expected to reach new heights in the coming years.
Read the full paper Read the full paper

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Infrastructure primaries of today, secondaries of tomorrow

The time for infra secondaries is now. We believe infrastructure secondaries reaching new heights in the coming years.

We explore how secondary investors may be presented with opportunities that are interesting from both a risk-adjusted return and a portfolio construction perspective.

 

Read more Read more
Man Working on building

Why infrastructure secondaries

Infrastructure secondaries not only provide the traditional benefits of secondary investments, but may also offer additional distinct benefits specific to the infrastructure asset class.

Infrastructure characteristics

Infrastructure assets may also offer inflation-linked revenues and pricing power along with stable, recurring cash flows from providing essential services further reinforced by high barriers to entry.

Undercapitalized market

Relatively nascent phase resulting in a buyer-friendly gap. Small- and mid-sized transactions tend to fly under the radar, offering the potential to be selective.

Yield enhancement

Secondary transactions possibly offer immediate yield from as early as day one. Moreover, the chance to buy assets at a discount or opt for a deferred payment structure can mechanically boost yield.

Infrastructure characteristics

Infrastructure assets may also offer inflation-linked revenues and pricing power along with stable, recurring cash flows from providing essential services further reinforced by high barriers to entry.

Undercapitalized market

Relatively nascent phase resulting in a buyer-friendly gap. Small- and mid-sized transactions tend to fly under the radar, offering the potential to be selective.

Yield enhancement

Secondary transactions possibly offer immediate yield from as early as day one. Moreover, the chance to buy assets at a discount or opt for a deferred payment structure can mechanically boost yield.

Infrastructure is just beginning to catch up

Market Pricing Chart

Attractive pricing: Transacted infrastructure market pricing

 

Source
BlackRock, Campbell Lutyens Infrastructure Market Report H2 2023 and H1 2024 Secondary Market Overview, Evercore Private Capital Advisory H1 2024 Secondary Market Review, as of August 2024. 

The formation and development of a secondary marketplace is a natural progression for illiquid asset classes, as seen in private equity and real estate. Over the past decade, Limited Partner (LP)-leds and General Partner (GP)-leds have each accounted for about half of transactions. LP-led secondary investments are typically acquired at a discount to NAV (Net Asset Value), driving immediate uplift. Pricing is often based on a historical reference date valuation, which may be stale at acquisition, potentially resulting in an effective discount higher than the optical discount, further enhanced through deferred payments.

Read the full paper now Read the full paper now

The time is now

Infrastructure secondaries can play a variety of roles within a portfolio, for both new and existing infrastructure investors alike.

As infrastructure secondary penetration rates begin to catch up to the levels seen in private equity in the early 2000s, transaction volumes are expected to ascend to new heights in the coming years. As these conditions persist, we anticipate buyers could be presented with attractive investments at compelling prices. The time is now.

There are several ways for investors to engage with infrastructure secondaries. Institutional & high-net-worth investors can access infrastructure secondaries opportunities via LP-led, GP-led secondaries or bespoke structured solutions, through private funds and separately managed accounts.

There is no guarantee that any forecasts made will come to pass.

Sources: BlackRock, as of August 2024.
1) Campbell Lutyens – Infrastructure Market Report H2 2023, CBRE, 2023.
2) Inframation – Infrastructure M&A transaction; Campbell Lutyens – Infrastructure Secondary Volume. All figures in USD unless otherwise stated.

 

Read more Read more

Authors

Serge Lauper

Serge Lauper

Global Head & CIO of Infrastructure Solutions
Jérôme Leyvigne

Jérôme Leyvigne

Co-Head of EMEA Investments, Global Lead for Infrastructure Secondaries, and ESG Officer for Infrastructure Solutions
Louis Grawehr

Louis Grawehr

Lead Secondaries Underwriter, Senior Investment Professional

Explore more

Investment Strategy

Alternatives are essential

Growing demand and complexity in private markets call for new approaches to overcome long-standing hurdles for investors. BlackRock offers a range of alternative strategies to help clients meet their unique portfolio objectives.
Learn more about alternatives Learn more about alternatives