The Evolving Opportunity Set in Infrastructure Secondaries

June 05, 2024

Executive Summary:

Infrastructure Secondary Volume Continues to Grow

  • The opportunities and areas of focus in infrastructure secondary investing are changing.
  • Private infrastructure’s recent transition to a buyer’s market has led some secondary investors to expect $15 - $20 billion of combined commitments in 2024 and 2025.
  • Secondary market volume continues to grow as market share shifts from GP-led transactions toward LP-led transactions, where more and larger volumes are expected with more diverse offerings, such as large to small sized LP portfolio transactions with multiple or single fund positions.

Strong Tailwinds for the Infrastructure Secondary Market

Relevance is relative. The more high-quality investment opportunities there are, the more relevant they become compared to other investments. For example, the private infrastructure secondary market may be far behind its private equity equivalent in terms of volume, but it is rapidly growing in relevance. Why?  

Because more high-caliber secondary infrastructure investment opportunities have arisen in recent years as the economy, asset class and the structures supporting it have matured. So, compared to private equity, the opportunity set appears to be growing more quickly. Let’s dig deeper. 

First, the denominator effect, whereby private asset allocations exceeding the percentage threshold established in an allocation policy must be corrected, currently plays an important role in the rise of infrastructure secondary transactions. Limited partners (LPs) are looking to reshape their portfolios and as a result, market share is shifting towards LP-led transactions, whereas it used to be composed mainly of general partner-led (GP) transactions. 

Second, infrastructure transaction volume in the secondary market has roughly doubled since 2017 to approximately $15 billion, while growth has accelerated over the last 12 - 18 months, mainly driven by the denominator effect. As a result, the volume of infrastructure funds sold in 2023 versus 2022 grew to approximately 12% of overall secondary market volume.  

Infrastructure Secondary Volume

Regardless of the denominator effect or weak macroeconomic circumstances, the secondary infrastructure market is poised to grow as the overall infrastructure market continues to mature.  

LPs are increasingly looking to rebalance their portfolios by focusing on fewer GP relationships and/or offloading tail-end positions. With this dynamic in effect, the infrastructure secondary market is expected to exceed $25 billion in the next three years. Going forward, we expect roughly 1% - 2% of infrastructure’s net asset value to trade on the secondary market.  

Investments in Infrastructure Secondaries Shift Away from GP-led Transactions 

Until 2022, GP-led transactions accounted for 70% - 80% of the overall secondary market volume. Looking ahead, GP-led contributions are expected to be lower, accounting for 40% - 50% of total contributions.

More and larger volumes of LP portfolios are expected to be transacted on secondary markets as well as multiple and single fund positions.

Infrastructure Secondaries: How Discounts Address Allocation Issues 

The infrastructure secondary market has been a seller's market for a long time, however, in the last 12 to 18 months it has become a buyer's market. As a result, buyers are able to pick up high-quality assets at a relatively attractive entry pricing.  

Infrastructure Secondary Discounts - Closed Transactions

Overall, in the last seven years, discounts on infrastructure funds were relatively light compared to other asset classes, so infrastructure proved to be a more lucrative way to reduce private markets allocation issues. 

Compared to previous years, the infrastructure secondary market is now well capitalized, with secondary investors expecting to seek $15 - $20 billion of combined commitments in 2024 and 2025 — factor that we believe will shape secondary infrastructure transactions in the coming years, regardless of the denominator effect or a weak macroeconomic environment.  

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. 

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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. 

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As of June 5, 2024
Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources. 

Secondary FoF – A fund that purchases existing stakes in private equity funds on the secondary market.  

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