Financing Infrastructure: On the Quest for an Asset-Class

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Sep 2018
Infrastructure financing “gaps” remain large but institutional investors maintain trillions of dollars in low yielding government bonds. One of the G20’s 2018 priorities has been to develop infrastructure as an asset class. Yet many argue the constraint is deal flow. In this paper we argue financing and the supply of viable projects are linked. For large, greenfield infrastructure in emerging economies banks, governments and multilateral development banks (MDB’s) are key financiers. Institutional investors may also play an important role, we suggest refinancing through standardized infrastructure bonds may be the best route to a liquid global asset class. Regulation should ensure banks maintain adequate liquidity and capital, while allowing them to finance construction, and provide incentives to then refinance. We argue national infrastructure funds may assist standardization and provide a focal point for MDB’s to facilitate project development and supply enhancements to attract private finance. A careful analysis of risks and an allocation to exploit comparative advantages in risk bearing, avoiding large public contingent liabilities are required.