What is private infrastructure?

Private infrastructure means investing in essential physical assets — like toll roads, power grids, and data centres — that aren't traded on public stock exchanges. These assets generate steady, often inflation-linked cash flows, which is why the world's largest pension funds have been pouring money into them for decades.

Every time you pay a highway toll, flip on a light switch, or stream a show, there's a decent chance a pension plan owns a piece of the infrastructure making it happen. That toll highway you drove on this morning is possibly owned by a Canadian pension fund, and the data centre routing your video call could be too.

Over the past three decades, private investors — especially large institutional ones like pension funds — have become major owners of the physical systems that keep modern life running. Governments still build and operate infrastructure, but private capital now controls significant portions of roads, energy grids, and water systems worldwide.

Canadian pension plans rank among the world's most active infrastructure investors. Canada Pension Plan Investment Board (CPPIB), Ontario Teachers' Pension Plan (OTPP), and Ontario Municipal Employees Retirement System (OMERS) are among the largest infrastructure investors on the planet. If you're a Canadian with a pension, you're already benefiting from infrastructure investing — even if you didn’t realize it.

This article breaks down what private infrastructure actually is, how it makes money, how it compares to other private asset classes, and whether it might be worth adding to your investments.

What counts as private infrastructure?

Private infrastructure refers to essential physical assets that are owned by private investors rather than governments or publicly traded companies. These aren't speculative bets — they're the backbone of daily life. Think roads, bridges, power plants, water systems, and the digital networks that keep everything connected.

What makes an asset "infrastructure" rather than, say, real estate or a factory? Infrastructure assets provide essential services that are difficult or impossible to replace, and they typically operate under long-term contracts or regulation. You can't exactly build a second electrical grid next to the existing one to compete with it.

The asset class covers several broad categories.

Transportation

Toll roads, airports, seaports, and rail systems. These are some of the most recognizable infrastructure assets. Highway 407, the toll road running across the Greater Toronto Area, is a classic Canadian example — it's privately owned and generates revenue every time a car passes through. Airports in cities like London, Sydney, and Copenhagen are privately held too.

Utilities

Water treatment plants, electricity distribution networks, and natural gas pipelines. These assets deliver services that people and businesses can't do without. Utilities are often heavily regulated, meaning government agencies set the rates they can charge — which makes cash flows predictable but limits upside.

Energy and renewables

Wind farms, solar parks, hydroelectric facilities, and energy pipelines. The energy transition has created enormous demand for private capital in renewables. A wind farm with a 25-year power purchase agreement (PPA) generates contracted revenue for a quarter century — that kind of cash flow visibility is rare in most investments.

Digital infrastructure

Data centres, fibre-optic networks, and cell towers. Digital infrastructure has grown rapidly in recent years. As cloud computing, artificial intelligence, and streaming continue to expand, the physical assets supporting them have become critical — and valuable. A single hyperscale data centre can cost over US$1 billion to build.

How private infrastructure makes money

Infrastructure assets don't make money the way most businesses do. You're not selling widgets or competing for customers. Instead, returns come from three main channels: cash yield from contracted, regulated, or usage-based revenue; inflation-linked revenue growth; and capital appreciation from operational improvements, development, or repositioning.

• Cash yield. The dominant source of return for lower-risk assets, this comes in a few forms.

  • Contracted cash flows: many assets operate under concession agreements or PPAs that lock in revenue for 20, 30, or sometimes 50+ years — a toll road might have a 99-year government concession, a wind farm a 25-year PPA with a utility.

  • Regulated rate bases: utilities like water and electricity distribution earn returns set by government regulators, who determine what the utility can charge and what return on capital the owner can earn. It's not glamorous, but it's predictable.

  • Usage-based revenue: some assets — toll roads, airports, ports — earn money based on how much they're used. Demand for these essential services tends to be resilient, though not immune to economic downturns.

• Inflation-linked escalation. Contracts and regulated frameworks often include built-in escalators tied to the Consumer Price Index (CPI), so revenue rises with inflation rather than eroding in real terms.

• Capital appreciation. Beyond ongoing yield, returns can come from operational improvements, developing new capacity, or repositioning an asset. This is where value is created rather than simply collected, and it typically carries more risk than contracted yield.

Where an asset sits on the risk spectrum depends on how much of its return comes from stable yield versus capital gains, and how much demand, construction, and regulatory risk it carries. These are also long-duration assets, with horizons measured in decades — often 20 to 99 years. A highway doesn't become obsolete and a water treatment plant doesn't go out of style, so investors can compound returns over very long periods.

The result is that infrastructure cash flows tend to be more predictable than most other asset classes. You're not betting on a company's next product launch or hoping management makes the right strategic call. You're collecting revenue from assets that people need to use every day — while also having the potential to create additional value over time.

How infrastructure differs from stocks and bonds

If you're used to investing in stocks and bonds, private infrastructure operates in a different universe. Here are the key differences.

Listed vs. direct ownership. You can buy listed infrastructure through exchange-traded funds (ETFs) or real estate investment trusts (REITs) that hold infrastructure assets. But listed infrastructure behaves a lot like the stock market — it moves with the stock market and gets priced by sentiment, not underlying cash flows. Direct private infrastructure ownership strips away that market noise. You own the asset itself, and its value is driven by cash flows, not daily stock price movements.

Performance across economic regimes. Private infrastructure's performance tends to vary across economic regimes. In inflationary environments in particular, it has often been one of the stronger-performing asset classes relative to traditional public equities and bonds. This is one of the main reasons institutional investors use infrastructure to diversify portfolios.

The illiquidity premium. The trade-off is liquidity. You can't sell your stake in a toll road the way you can sell a stock with a tap on your phone. Capital is typically locked up for years. In exchange, investors expect to earn an "illiquidity premium" — higher returns than they'd get from a comparable liquid investment. Whether that premium actually materializes depends on the specific asset and manager.

A range of risk and return profiles. Infrastructure isn't a single profile. Core infrastructure sits in an interesting spot: lower volatility than private equity (PE), with steady cash flows and inflation protection baked in. But the asset class also includes higher-risk, higher-return segments — and our fund is primarily focused on this part of the opportunity set.

Private infrastructure vs. private equity vs. private credit

These three asset classes all live in the "private markets" bucket, but they work very differently. Understanding where infrastructure fits relative to private equity and private credit helps clarify what you're actually getting.

Private equity involves taking equity stakes in operating companies — think software firms, restaurant chains, or manufacturers. Private equity managers aim to improve operations, grow revenue, and sell the company at a higher price. Returns are driven by operational improvement, improvement of capital structure, and exit multiples. It's higher risk, higher potential return — and your outcome depends heavily on the manager's ability to add value before selling.

Private credit is lending money to companies that can't or don't want to borrow from banks or public markets. It's similar to bonds but privately negotiated. Returns come from interest payments. There's no equity upside — you get your interest and (hopefully) your principal back. Lower risk than private equity, but limited return potential.

Private infrastructure sits between the two, spanning a wide spectrum — from highly stable, predictable cash flows to development-stage projects, which carry higher risk and return profiles and are closer in nature to private equity. Returns come from a combination of cash yield (the ongoing revenue the asset generates) and capital appreciation, with the mix depending on the asset — in some cases returns are driven primarily by stable income, in others more heavily by capital appreciation. The inflation linkage is a key differentiator — many infrastructure contracts automatically adjust for CPI. Private credit also tends to keep pace with inflation through its floating-rate structure, since rising inflation generally means rising rates and higher interest income, though typically with less direct inflation sensitivity than infrastructure.

Why infrastructure tends to hold up against inflation

Rising inflation erodes the purchasing power of fixed-income investments — a public bond's fixed coupon buys less each year, since it doesn't adjust with changes in interest rates or inflation. Infrastructure has a structural advantage because many contracts are explicitly tied to inflation indexes.

CPI-linked contracts. Many infrastructure agreements explicitly tie revenue to inflation. Toll rates, utility tariffs, and PPAs often include annual CPI adjustments. When inflation rises 4%, the toll goes up 4%. This isn't a hedge you have to engineer — it's written into the contract.

Inelastic demand. People don't stop using electricity when prices rise. They don't stop driving on toll roads or flushing toilets. Demand for essential services is remarkably sticky, which means infrastructure revenue holds up even when the economy gets bumpy.

Rising replacement costs. When inflation pushes up the cost of steel, concrete, and labour, it pushes up the cost of building new infrastructure. That makes existing assets more valuable — nobody's going to build a competing highway if construction costs have doubled.

Historical performance. During inflationary periods, infrastructure has tended to outperform traditional fixed income and equity. This makes intuitive sense: bonds pay a fixed coupon that gets eroded by inflation, while infrastructure revenue adjusts upward. That said, past performance isn't a guarantee, and infrastructure isn't immune to all inflationary pressures — rising interest rates, in particular, can create headwinds.

Who invests in private infrastructure?

The world's largest institutional investors — pension funds, sovereign wealth funds, and insurance companies — control private infrastructure, and for most individual investors, meaningful direct access remains out of reach.

Canadian pension plans are among the world's largest infrastructure investors. CPPIB has allocated billions of dollars to infrastructure assets globally. OMERS owns stakes in utilities and airports across multiple continents. OTPP manages an infrastructure portfolio worth tens of billions of dollars. British Columbia Investment Management Corporation (BCI) is another major player. These funds have the scale, expertise, and long time horizons that infrastructure investing demands.

Sovereign wealth funds and insurance companies. Funds like Singapore's GIC, Abu Dhabi's ADIA, and Australia's Future Fund are significant infrastructure investors. Insurance companies love certain types of infrastructure assets because their long-duration cash flows match their long-term liabilities (they need to pay claims decades from now).

Endowments and family offices. University endowments and large family offices have been increasing their infrastructure allocations, drawn by the diversification benefits and inflation protection.

Individual investors. This has changed in recent years. As with private equity and private credit, access has opened up — there are now funds that provide high-net-worth individuals with access to infrastructure investments that were once the exclusive domain of large institutions.

The most common way individual Canadians get exposure to infrastructure is indirectly — through their pension contributions. If you contribute to the Canada Pension Plan (CPP), the fund invests your money in infrastructure assets around the world. You're already an infrastructure investor. You didn't have to do anything.

What are the risks?

People often call infrastructure "boring" investing, and boring usually is good — but it isn't risk-free. Many of these risks are common across private assets.

• Illiquidity. Capital is typically locked up for years. You can't sell when you want to. If you need your money back before the investment matures, you're stuck — or you're selling at a steep discount.

• Transparency. Private assets aren't priced daily by a public market, and reporting is less frequent and less standardized than for public securities. You have less visibility into what your investment is worth at any given moment and how it's being managed.

• Leverage. Infrastructure deals often use significant debt to finance assets. Leverage can amplify returns, but it cuts both ways — it also amplifies losses and adds sensitivity to interest rates and refinancing conditions.

• Manager selection risk. Outcomes depend heavily on the manager's skill in sourcing, structuring, and operating assets. The dispersion between top- and bottom-performing managers is wide, so choosing the right one matters far more than it does with a passive public index.

• Higher fees. Private funds typically charge management fees plus a share of profits, well above what you'd pay for a public index fund. Those fees eat into net returns and raise the bar for the underlying assets to perform.

• Political and regulatory risk. Governments giveth and governments taketh away. A government can change toll structures, impose new environmental regulations, renegotiate concession agreements, or — in extreme cases — nationalize assets. Infrastructure is deeply intertwined with politics.

• Interest rate sensitivity. Infrastructure's steady cash flows are often compared to bonds. When interest rates rise, the relative attractiveness of those cash flows can decrease — and rising rates in 2022 and 2023, for example, created headwinds for infrastructure valuations.

Is private infrastructure right for you?

This isn't a recommendation. Whether infrastructure belongs in your portfolio depends on your specific situation, goals, and constraints. But here's a framework for thinking about it.

Infrastructure exposure may make sense if you have a long time horizon. If you're saving for retirement 25 years from now, the illiquidity of infrastructure matters less because you don't need the money anytime soon. It may appeal if you're looking to diversify beyond traditional stocks and bonds, or if you're concerned about inflation eroding the purchasing power of fixed-income holdings.

Access has improved. It's a misconception that you need to write a US$10 million cheque to invest in private infrastructure. As with private equity and private credit, the market has evolved — high-net-worth individuals can now access these strategies through funds with relatively low minimums and structured (though still limited) liquidity. These vehicles open the door to a part of the market that was once reserved for large institutions. That said, the trade-offs that come with private assets — illiquidity, fees, and the others covered above — still apply, so it's worth understanding what you're signing up for.

Understanding what private infrastructure is — how it works, where the returns come from, and what the risks are — is the first step to evaluating whether it belongs in your financial picture. The asset class isn't going anywhere. The roads, power grids, and data centres that underpin modern life will keep running, and someone has to own them.