The Infrastructure Middle Market Is Ripe with Opportunity

June 05, 2024 | 6 Min Read
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Executive Summary:

Infrastructure’s Value Creation Potential Is Greatest in Middle-Market Funds  

  • The lower and middle market represents a large opportunity set, accounting for 95% of transactions in 2023.  
  • At the same time, capital is becoming more concentrated in large and mega infrastructure funds that are getting bigger and capturing an increased share of the fundraising. 
  • Lower and middle market investments present a larger opportunity set with more attractive entry valuations, more varied value creation levers and robust exit optionality.  

As we sit down to publish Hamilton Lane’s 2024 Real Assets Market Overview, the underlying infrastructure investment landscape continues to evolve. One of the most significant trends we’ve seen in recent years has been infrastructure fund sizes continuing to get bigger, and bigger, and bigger still. We have seen middle-market fund managers grow into large-cap managers, with large-cap funds evolving into what we now call mega funds. As the big get bigger, capital is becoming increasingly concentrated. 

A Continued Concentration of Capital in the Large-Cap Space 

We know why fund managers like raising more dollars and investing in larger funds, but is bigger always better for investors?  

Hamilton Lane’s infrastructure investment platform continues to be a strong supporter of the lower and middle market because of the multiple middle-market investing benefits, such as:  

  1. Larger opportunity set  
  2. Attractive entry valuations 
  3. More value creation levers 
  4. Historically stronger realized returns  

A Larger Opportunity Set for Middle-Market Investing 

In 2023, large-cap transactions (>$2.5 billion of enterprise value) accounted for 49% of transaction value, however, they only represented 5% of transaction volume. Of the 1,368 transactions recorded in 2023, the middle market and lower middle market accounted for 95% of transaction volume, meaning that there were more potential deals, but fewer dollars and buyers compared to the top end of the market.


This relative imbalance highlights a growing trend: Capital is increasingly concentrated in fewer, larger investments, so the opportunity to invest in the lower and middle market is becoming more attractive. The same trend persists in fund investing; since 2017, large-cap funds have accounted for more than half of capital raised, reaching 73% through 2023.  

Infrastructure Fundraising
USD Billions

In addition to the ballooning average fund size, fundraising concentration at the very top end of the spectrum has increased as well. Despite a challenging fundraising environment, the top five largest fundraises captured a staggering 80% of infrastructure capital raised through 2023.

Five Largest Infrastructure Funds as a % of Total Fundraising

What does this mean for investors?  

Attractive Middle-Market Entry Valuations 

The larger concentration of capital being allocated to fewer large-cap funds has led to higher competition for deals with enterprise values over $2.5 billion. As a result, we believe that lower and middle-market opportunities continue to be an attractive segment due to less competition from an increasing number of large and mega-cap funds which all compete for the same deals.   

Average EV/EBITDA Multiple for Infrastructure Transactions

Over the last five to 10 years, infrastructure deals in the lower and middle markets transacted at a ~23% average discount compared to large and mega-cap transaction multiples, which is one of the attributes creating relative outperformance at an investment’s outset.  

There Are More Levers for Value Creation in the Middle Market 

In addition to buying assets at more attractive entry valuations, we have found that there are more varied value creation initiatives which can be pursued through lower and middle-market opportunities. These opportunities also rely less on macroeconomic factors such as overall economic growth and the condition of equity and debt capital markets. Simply put, the enhanced ability to grow and/or de-risk investments differentiates the middle market.  

Value creation initiatives may include growing the business out of a small-cap discount or professionalizing a previously family- or founder-run business by building out the executive management team and a board of directors. Many lower and middle-market firms specialize in being the first institutional capital injected into a business, providing significant sums of capital to finance accretive growth and a tried-and-true playbook for building great businesses. Growth initiatives such as developing new projects or completing bolt-on acquisitions can actually ‘move the needle’ in the middle market and create significant value. As a business is grown and derisked, its cost of capital is lowered and increasingly attractive (sometimes more complex) sources of financing become accessible, which can unlock additional value. 

Another lever that investors can pull is preparing portfolio companies for sale. Value creation strategies often center around transforming a business to make it more attractive for the next buyer. Optionality at exit is another reason we are drawn to investing in the middle market, as a wider audience of potential buyers can take action on small- and medium-sized businesses. This buyer pool includes a vast number of other middle-market funds, strategic buyers and a growing number of large and mega-cap funds which must deploy ever-growing sums of capital. In contrast, at the upper end of the market, the path to exit can be more limited, as there are fewer funds or companies with sufficient capital to execute a large or mega-cap acquisition, which increases the reliance on the public markets for exiting via an IPO.  

Stronger Middle-Market Realized Returns  

Last but certainly not least, our experience and data suggest that high-quality (first quartile and top performing) middle-market funds have historically outperformed and provided additional upside opportunity, relative to the large and mega-cap segment.

Net IRR & TVPI Performance

Practicing What We Preach   

In a world where funds continue to get bigger and bigger, and the largest fund managers continue to concentrate capital raised (73% in 20231), we continue to build diversified investment portfolios for our clients. What does that look like? On average, 69% of infrastructure portfolios invested or advised by Hamilton Lane are allocated to lower and middle-market funds.  

Infrastructure Fund Investments

Contrary to popular belief, bigger is not always better.  

We provide further insights and observations across real estate in our 2024 Real Assets Market Overview. Please complete the form below to receive an emailed copy of the report. 

1Q1-Q3 2023 


We provide further insights and observations across real estate in our 2024 Real Assets Market Overview. Please complete the form below to receive an emailed copy of the report. 

Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources. 
This presentation has been prepared solely for informational purposes and contains confidential and proprietary information, the disclosure of which could be harmful to Hamilton Lane. Accordingly, the recipients of this presentation are requested to maintain the confidentiality of the information contained herein. This presentation may not be copied or distributed, in whole or in part, without the prior written consent of Hamilton Lane.

The information contained in this presentation may include forward-looking statements regarding returns, performance, opinions, the fund presented or its portfolio companies, or other events contained herein. Forward-looking statements include a number of risks, uncertainties and other factors beyond our control, or the control of the fund or the portfolio companies, which may result in material differences in actual results, performance or other expectations. The opinions, estimates and analyses reflect our current judgment, which may change in the future. 

All opinions, estimates and forecasts of future performance or other events contained herein are based on information available to Hamilton Lane as of the date of this presentation and are subject to change. Past performance of the investments described herein is not indicative of future results. In addition, nothing contained herein shall be deemed to be a prediction of future performance. The information included in this presentation has not been reviewed or audited by independent public accountants. Certain information included herein has been obtained from sources that Hamilton Lane believes to be reliable, but the accuracy of such information cannot be guaranteed. 

This presentation is not an offer to sell, or a solicitation of any offer to buy, any security or to enter into any agreement with Hamilton Lane or any of its affiliates. Any such offering will be made only at your request. We do not intend that any public offering will be made by us at any time with respect to any potential transaction discussed in this presentation. Any offering or potential transaction will be made pursuant to separate documentation negotiated between us, which will supersede entirely the information contained herein. 

Hamilton Lane (Germany) GmbH is a wholly-owned subsidiary of Hamilton Lane Advisors, L.L.C. Hamilton Lane (Germany) GmbH is authorised and regulated by the Federal Financial Supervisory Authority (BaFin). In the European Economic Area this communication is directed solely at persons who would be classified as professional investors within the meaning of Directive 2011/61/EU (AIFMD). Its contents are not directed at, may not be suitable for and should not be relied upon by retail clients. 

Hamilton Lane (UK) Limited is a wholly-owned subsidiary of Hamilton Lane Advisors, L.L.C. Hamilton Lane (UK) Limited is authorised and regulated by the Financial Conduct Authority (FCA). In the United Kingdom this communication is directed solely at persons who would be classified as a professional client or eligible counterparty under the FCA Handbook of Rules and Guidance. Its contents are not directed at, may not be suitable for and should not be relied upon by retail clients. 

Hamilton Lane Advisors, L.L.C. is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 in respect of the financial services by operation of ASIC Class Order 03/1100: U.S. SEC regulated financial service providers. Hamilton Lane Advisors, L.L.C. is regulated by the SEC under U.S. laws, which differ from Australian laws. 

Any tables, graphs or charts relating to past performance included in this presentation are intended only to illustrate the performance of the indices, composites, specific accounts or funds referred to for the historical periods shown. Such tables, graphs and charts are not intended to predict future performance and should not be used as the basis for an investment decision. 

The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein. 

The calculations contained in this document are made by Hamilton Lane based on information provided by the general partner (e.g. cash flows and valuations), and have not been prepared, reviewed or approved by the general partners. 

As of June 5, 2024

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