America could be on the verge of an infrastructure boom as the interests of lawmakers and investors align. While the government is set to unleash funding for infrastructure, private investors are ramping up investments in an effort to escape the inflationary wave.

The 117th Congress has unlocked over $1.25 trillion in funding across the next ten years through the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA). Much of this historic amount is earmarked for new investments in America’s transportation and energy infrastructure. The goal, according to the White House, is to “advance energy security and combat climate change.”

Investors seem to have noticed. Infrastructure investment funds collectively raised a record-high $162 billion in 2022, according to data published by Preqin. About seventyy-eight percent of that capital was deployed in the first six months alone, which Preqin described as the “most active fundraising market ever.”

However, government stimulus measures were not the only reason for this surge in infrastructure investments. Inflation could be just as much, if not more, of a consideration. The Consumer Price Index (CPI) was up 5 percent year-over-year in March 2023. That rate has been gradually declining for nine months but is still stubbornly higher than the Federal Reserve’s 2 percent target. It’s also significantly higher than the yield on a 10-year government treasury note.

Investors could be turning to infrastructure assets in an effort to sustain purchasing power. Infrastructure projects such as toll roads have automatic inflation-linked rate adjustments, which makes them an ideal hedge against inflation.

“Many of our clients are focused on rising rates and inflation, as we are, particularly since infrastructure investments have the potential to outperform other asset classes in this environment,” says Matthew Lipton, co-head of infrastructure investment research at Partners Group.

The Swiss private equity firm has over $135 billion in assets under management and is focused on infrastructure not just for the inflation hedge, but also to participate in the clean energy transition.

Partners Group has turned the world’s pursuit of decarbonization into one of its main investment themes. “Environmental and social factors shape our value creation strategies to transform investments into next generation infrastructure,” says Lipton. This strategy has led to investments in solar energy platform Dimension Energy, transportation equipment provider Milestone and energy-as-a-service firm Budderfly in recent years.

These investments could be an early indication that the government’s pursuit of energy independence and investors’ pursuit of inflation hedges could culminate in an infrastructure boom across North America.

Vishesh Raisinghani