The federal government has indicated ambitious infrastructure goals, but the promised spending will likely run up against budgetary constraints. While US infrastructure has traditionally been financed via tax-exempt municipal bonds, significant increases in infrastructure spending will likely require additional sources of funding.
Public-private partnerships (P3s), for example, are an increasingly popular alternative financing option. P3s have risen in the last couple of years as local governments seek to privatize infrastructure projects as a way to overcome budget shortfalls.
In fact, the number of P3 deals that closed doubled just in the last year – from five deals in 2015 to 10 in 2016. And PwC analysis indicates that more P3s are entering the pipeline, including transportation, power, waste and water, and social infrastructure projects.
Private funding of infrastructure projects is also expected to gain traction, especially if legislation is passed to support private funding with tax credits.
“New investments in infrastructure by private asset managers are changing the way the world finances its cities, power systems, and transportation links. And the biggest rewards go to firms that act as aggressive investors and become partners in the projects.”
Investors today are looking at infrastructure with renewed interested. As of the first half of 2016, infrastructure funds that focus on North American assets were sitting on $75 billion in dry powder,1 and they are ready to snap up suitable, high-quality projects.
It is easy to understand their motivation. Infrastructure assets are long-term: Post-construction concession agreements can run from 30 to 99 years. This matches the preferred time horizon of many asset management programs because their aging clients need investments that preserve capital.
The long-term, relatively stable yields are particularly attractive to sovereign wealth funds and pension funds, which are increasingly investing directly in infrastructure themselves.
Is your infrastructure project ready to meet these investors’ needs?
The changing infrastructure investment landscape requires new skill sets and capabilities in deal sourcing, evaluation and asset management. At PwC, we help our clients develop financing strategies, conduct investment appraisals, and implement financing plans.
In addition, our team of 1,000 engineering, business, finance, and government experts, can offer you full coverage support extending over the entire project lifecycle – from strategy to financing to delivery, and even disposal of the assets.