Infrastructure that pays: How revenue resilience can transform an emerging asset class

Author: Manpreet Kaur Juneja

Infrastructure is a unique sector, balancing the characteristics of a monopoly-like business with the responsibilities of a public good. These opposing forces – profitability and affordability – create a “cooperative equilibrium zone” where stable revenues are possible. This stability is a key feature that attracts private investors, especially given the perceived high risks and uncertainties with large, long-term infrastructure investments.

Revenue Resilience: A Defining Feature

The fifth edition of the Global Infrastructure Monitor presents global data on infrastructure financial performance and investors surveys. The Findings show that “revenue-resilience” – the ability of projects to deliver stable, predictable cash flows – significantly enhances the attractiveness of infrastructure investments for private investors. Notably, private investors observe that infrastructure equities behave more like bonds than other equities, thanks to their expected stable revenues. This common characteristic could be formally recognized to help scale infrastructure as an asset class.

The Urgency for Private Investment

The stakes are high. The world faces a multi-trillion-dollar infrastructure financing gap, while debt has soared above 95% of global GDP, limiting governments' ability to respond. The 2018 G20 Roadmap to Infrastructure as an Asset Class aimed to mobilize private capital, but persistent barriers—including the lack of standardized performance data—have slowed progress. The Global Infrastructure Monitor helps address this gap, providing the data-driven foundation needed to move from vision to implementation.

Why Regulators Hesitate to Define Infrastructure as an Asset Class 

Infrastructure is a diverse and evolving sector—from roads, bridges, utilities to digital networks. Each asset type has distinct risk profiles and governing frameworks. Historically, infrastructure has demonstrated lower risk and delivered stable revenues —factors that attract long-term investors, as detailed in the Global Infrastructure Monitor 2024’s financial performance section. For example, infrastructure debt has shown lower default rates, higher recovery, and lower expected losses compared to non-infrastructure loans, while infrastructure equities offer relatively stable returns.

Despite these strengths, risk perceptions remain high due to wide variability across sectors, regions, and project phases. For example, the 2023 Monitor report shows that the 20-year cumulative default rates ranged from 0.8% to 25.4%, depending on the region and decade (1990-2021). Factors such as large project size, complex structuring, concentrated counterparty payment risk, long duration and uncertainty, further elevate perceived risk. 

Private sector: Investing Through a Revenue Resilience Lens

Private sector investors and financial regulators prefer a risk-based approach, favoring infrastructure investments with stable long-term cash flows. Data from Preqin shows that most private capital in infrastructure funds is invested in low-risk strategies (see Infrastructure Funds chapter in Infrastructure Monitor 2024). The public sector also prefers to adopt business models that cap upside returns like affermage (where excess profits are paid to the public authority), and revenue assurances like offtake agreements that guarantee future sales.

Insurance supervisors and regulators have recently recognized infrastructure as a distinct asset class, assigning lower risk charges for investments with predictable revenues – such as those with availability-based payments, rate-of-return regulations, or strong contractual and regulatory provisions. International banking regulations (Basel III reforms) also provide a 20% discount to high quality project finance exposures in the operational phase, where positive net cash flows are resilient against adverse changes in conditions.

Monitor 2024 financial performance section highlights that revenue-resilience materially reduces default rates of infrastructure projects, drawing from Moody’s reports. Availability-based Public-Private Partnerships (PPPs), where payments are tied to service availability, show significantly lower default rates in more developed economies with creditworthy public counterparties and stronger market capacity. Similarly, infrastructure corporates regulated by independent, reliable, and transparent authorities - such as electricity, gas, and water utilities - have lower defaults. The International Energy Agency (IEA) supports these findings, noting that projects secured by revenue-resilience mechanisms (e.g., power purchase agreements, feed-in tariffs, contracts for difference) incur lower financing costs.

Regulatory and Policy Implications

Although data availability is limited, particularly in emerging markets, the trend is clear: projects with revenue resilience are associated with lower risk and higher private capital mobilization. These projects could potentially qualify for favorable regulatory treatment, such as risk-based discounts.

Banking regulations already recognize a low-risk subset within the real estate asset class - income-producing real estate - where stable cash flows and asset-backed collateral strengthen recovery rate. Despite being capital-intensive, infrastructure assets are often not recognized as collateral due to legal and contractual complexities. However, resilient revenues could be formally recognized as a form of collateral, such as accounts receivable.

Credit rating agencies note that the default likelihood spikes when infrastructure assets transition from construction to operations, often due to miscalculations in expected revenue streams. The higher recovery rates for infrastructure debt compared to non-infrastructure debt – achieved through negotiations and restructuring - suggest that guarantees from influential stakeholders (e.g., national governments, MDBs) could help bridge concerns, particularly for essential assets, to comply with ‘revenue-resilient’ criteria.

Towards a Revenue-Resilient Infrastructure Asset Class

Innovative structures backed by governments, international donors, and pricing regulators can help define and scale a revenue-resilient or income-producing infrastructure asset class, despite the sector being diverse. This approach can fuel development and trading of innovative infrastructure products in secondary markets, easing liquidity constraints. A standardized, broad-based market development strategy can bring consistency to existing ad-hoc efforts, accelerating private investment in infrastructure.