Private capital the future of infrastructure: BlackRock CEO

Public-private partnerships and investment funds will be key to meeting infrastructure demands in the United States, where public debt won't be enough to close the gap or cover the shift to decarbonization.

That's the message from Larry Fink, CEO of BlackRock, the world's largest asset manager that in January made a major move into the "booming infrastructure market" with the $12.5 billion acquisition of Global Infrastructure Partners, one of the world's largest infrastructure funds.

In his closely read investor letter, Fink said private capital will be needed to address the infrastructure funding gap, finance the energy transition and drive U.S. economic growth to help manage the country's "snowballing debt."

Bloomberg

"Even in the U.S., where the Biden Administration has signed generational infrastructure investments into law, there's still $2 trillion worth of deferred maintenance," Fink said. "How will we pay for all this infrastructure? The reason I believe it'll have to be some combination of public and private dollars is that funding probably cannot come from the government alone."

Infrastructure needs in the U.S. are well known, illustrated most recently by the need to replace a key river crossing following the collapse of Baltimore's Francis Scott Key Bridge and a section of California's Highway 1 falling into the ocean. The American Society of Civil Engineers has projected it would take $2 trillion to bring United States infrastructure up to a state of good repair.

Beyond the needs to maintain and rebuild failing infrastructure, the energy transition to renewable energy represents another massive need.

Infrastructure investment firm IFM Investors estimates that over the next 30 years, decarbonization will cost $100 trillion globally, a figure that includes climate adaption needs. Goldman Sachs has said $6 trillion is needed annually this decade to decarbonize the globe.

While municipal market participants expect the muni market and federal funds to cover much of the costs in the U.S. — with other models like a national infrastructure bank or tax credits playing a role — Fink and others say the capital markets will be needed to close the gap.

"In the U.S., people tend to think of infrastructure as a government endeavor, something built with taxpayer funds," Fink said. But "that won't be the primary way infrastructure is built in the mid-21^st century," he said. "The future of infrastructure is public-private partnership."

It's not just "debt-strapped governments" that need capital but private firms that increasingly own assets like cell towers and pipelines are also looking for financing partners, he said.

Specifically, private money can help lower the costs of the so-called green premium for consumers, Fink said. "The lower the green premium, the fairer decarbonization will be because it'll be more affordable," he said. "This is where the power of the capital markets can be unleased to great effect. Private investment can help energy companies reduce the cost of their innovations and scale them around the world."

The amount of private capital available for infrastructure has more than quadrupled, to $129 billion from $34 billion, between 2011 and 2021, most of it raised in North America and Europe, according to a 2022 Global Infrastructure Hub report. The total market value of infrastructure assets under management has grown from $170 billion in 2010 to $1 trillion in 2021 and is expected to reach $1.87 trillion by 2026, according to the report.