Institutional investors have gradually increased their average allocation to infrastructure, prompting a more thoughtful approach to optimal portfolio construction. Increasingly, investors seek diversification by geography and sector, complemented further by size, as a path to reduce a portfolio’s sensitivity to macro factors, as well as financial and other external shock events. CBRE Investment Management’s research indicates that mid-market infrastructure, which we define as unlisted infrastructure companies with an enterprise value of $500 million to $2 billion, is a compelling addition to established infrastructure portfolios.
TO DOWNLOAD A FULL COPY OF THE ROUND TABLE PDF CLICK HERE
The largest 100 unlisted mid-market infrastructure companies have historically outperformed the core infrastructure market across five- and ten-year periods, both on an absolute and risk-adjusted basis. The chart below shows that imputed annualised returns for the top 100 mid-market companies over these time periods were strong and consistent at 12.2 per cent and 12.4 per cent, respectively. Below we investigate the reasons for the mid-market return advantage.
Sizable opportunities set
Contrary to the perception that infrastructure investing is limited to large-scale assets like airports or utilities, the mid-market is vibrant and diverse. Over the past five years, mid-market transactions have averaged nearly $600 billion annually across more than 1,500 deals. These opportunities are concentrated in sectors aligned with global megatrends such as; renewable energy, electrified transport, and digital infrastructure.
In Europe, mid-market infrastructure is well-established, particularly in Germany and the Nordics. However, the UK and US are seeing rapid growth. In the US, one in ten mid-market deals involves fiber networks, data centres, or wireless towers, sectors benefiting from surging digital demand.
More attractive entry multiples
The rise of mega infrastructure funds (over $5 billion) has led to increased competition for large, trophy assets. In contrast, mid-market deals face less competition, allowing investors to acquire assets at more favourable entry multiples, typically measured by enterprise value to EBITDA. These transactions are often relationship-driven, enabling bilateral negotiations and avoiding auction processes that can inflate prices.
Powerful engines of economic growth
Mid-market companies are vital contributors to economic activity. In the U.S., they represent one-third of private sector GDP and consistently outperform the S&P 500 in revenue growth. While macroeconomic headwinds in 2024 slowed growth to under 2 per cent, mid-market infrastructure businesses remain agile and innovative, with strong potential for recovery and expansion.
These companies are well-positioned to benefit from structural megatrends such as energy transition, digitalisation, and demographic shifts. For example, the International Energy Agency projects that global power demand from AI-driven data centres could double or triple by 2030, with renewables expected to supply half of this additional demand.
Defensive play
Despite perceptions of higher volatility, mid-market infrastructure has demonstrated strong defensive characteristics. Risk metrics, including historical volatility and maximum drawdown are comparable to or better than those of core infrastructure. Many mid-market assets operate under long-term contracted models, such as availability-based concessions, which provide predictable, inflation-linked
cash flows.
Opportunities for value creation
Mid-market deal sizes allow for more tailored financing and active asset management. Fund sponsors can unlock value through platform build-ups, bolt-on acquisitions, and strategic capital structuring. During periods of market dislocation, such as recent clean energy devaluations in the U.S., mid-market investors have capitalised on discounted valuations and recycled capital through asset sales and minority stake dispositions.
Infrastructure managers can further enhance stability by structuring inflation-linked contracts. Examples include electricity-as-a-service models in heating and cooling infrastructure, and long-term subscription agreements for EV charging depots serving logistics fleets.
Conclusion
Infrastructure is an asset class that has delivered strong performance. Core plus and value creation strategies focused on downside protection and secular growth can go further to help maximise infrastructure’s attractive risk-return profile. Maximising performance can be achieved by being nimble and flexible, investing globally in mid-market assets operating in next-generation infrastructure sector and by using an optimal fund structure. We believe that in today’s challenging economic and geopolitical environment, next-generation infrastructure core plus strategies through an open-end fund is a timely investment opportunity.