Powering the infrastructure supercycle with private capital

April 2026  |  SPECIAL REPORT: INFRASTRUCTURE & PROJECT FINANCE

Financier Worldwide Magazine

April 2026 Issue

The global energy and infrastructure landscape faces an unprecedented challenge. Recent estimates consistently point to an investment deficit in the range of at least half a percentage point of global gross domestic product per year.

This equates to $700bn per annum or $7 trillion over the next decade, the sum required to build, maintain and upgrade the fundamental systems underpinning modern economies. From resilient transport networks and advanced digital connectivity to sustainable energy grids and clean water systems, infrastructure is the bedrock of economic growth, climate transition and social wellbeing.

However, the sheer scale of the funding requirements far exceeds the capacity of public funds alone. Unlocking private capital is not only essential to bridge this funding gap but to ignite and fuel the infrastructure supercycle. Private capital investments, in turn, require effective and reliable legal and financial frameworks. Having such frameworks in place becomes key to transforming ambition into tangible infrastructure assets.

While initiatives like the UK’s National Infrastructure Strategy or Germany’s Special Fund for Infrastructure and Climate Neutrality offer a starting point, even these substantial commitments are insufficient to bridge the vast funding gap.

Macroeconomic tailwinds: the ‘four Ds’

Several powerful macroeconomic tailwinds are converging to both exacerbate the infrastructure deficit and simultaneously create an opportunity for strategic deployment of private capital.

This infrastructure supercycle is shaped by ‘four Ds’ – demographic change, decarbonisation, digitalisation and deglobalisation.

The demographic shifts caused by further rapid urbanisation in some parts of the world and by an ageing population in other parts of the world are placing immense pressure on existing facilities and demanding an adjustment of urban infrastructure.

The policy aim of many governments to achieve net-zero emissions is driving a massive transition across the energy sector, requiring colossal investments in renewables, smart grids, hydrogen production, electric vehicle charging networks and carbon capture technologies.

Concurrently, digital transformation, accelerated through artificial intelligence (AI) technologies, continues its relentless pace, necessitating expanded 5G networks, fibre optic rollouts, new data centres and the foundational infrastructure for AI.

Deglobalisation, driven by geopolitical fragmentation and the strategic prioritisation of supply chain resilience, is prompting governments and corporations to reconfigure production networks and invest in domestic and regional infrastructure, including energy systems, logistics corridors, industrial facilities and strategic transport networks.

Moreover, infrastructure as an asset class promises to be an inflation-linked, long term asset class with stable cash flows. Especially in times where other asset classes yield increased volatility, infrastructure can provide a stabilising component in institutional portfolios.

Governments at the same time face significant fiscal constraints following a series of global crises since the Great Recession, that limit their ability to fund projects directly from public budgets. At the same time, competing budgetary priorities, including social spending, defence and economic support measures, put additional pressure on public finances.

Public sector ambition

Governments worldwide unequivocally recognise the critical need for private sector involvement in infrastructure development. Whether it is the US Infrastructure Investment and Jobs Act or Inflation Reduction Act, France’s 2030 Investment Plan, the abovementioned UK National Infrastructure Strategy or Germany’s Special Fund for Infrastructure and Climate Neutrality – all of these initiatives aim to unlock private capital to increase funding capacity.

Under its Special Fund for Infrastructure and Climate Neutrality, Germany pledged to invest €500bn over approximately the next decade for the infrastructure sector, including transport, energy systems and digital infrastructure. A core objective of the programme is to catalyse investments for the energy transition and to modernise national infrastructure.

However, simply making funds available is not enough and does not in itself create bankable investment opportunities. Translating headline funding figures into a pipeline of shovel-ready, bankable projects presents a substantial challenge.

The capacity for project origination and execution often lags behind financial commitment. Furthermore, any investor requires a predictable and stable regulatory framework that matches its investment horizon and allows for swift navigation through the complexities of permitting regimes and managing its supply chain.

Additionally, while the funds which are made available are significant, they are by no means sufficient to actually plug the funding gap. Ultimately, while government funding is often an indispensable part of the equation, acting as a crucial enabler and targeted stimulus, it typically leaves a substantial, persistent gap that is best filled by the efficiency and depth of private capital.

Public sector support for derisking large-scale infrastructure projects

Large-scale infrastructure projects are inherently complex, fraught with diverse risks that can deter even the most sophisticated investors. It is the role of the public sector to mitigate these risks to attract private capital and increase the chances for a successful project implementation.

Infrastructure projects face key risks that are largely within the control of the public sector, such as regulatory risk and enforcement risk, and the public sector is further able to increase the bankability of projects and attract private capital by using a number of instruments.

Beyond mere subsidies, such instruments include public-private partnerships (PPPs), co- and anchor investments, and public guarantees.

The PPP model relies on close cooperation between the state and the private sector. The division of tasks varies by project: often the public sector takes responsibility for providing land, while planning, construction, financing, operation and maintenance typically fall to the private partner. While PPP models have proven successful in a number of countries around the globe, particularly in complex large-scale projects, they have also faced challenges regarding unequal risk sharing and limited transparency in recent years.

For co- and anchor investments, the state invests as the first capital provider in a fund or project structure, often taking on a riskier ‘first-loss tranche’. This positioning significantly improves the risk-return profile for subsequent private investors. This leverage effect increases the likelihood of further capital providers participating. Anchor investments are particularly useful for initiating new or particularly risky projects and mobilising private funds that would otherwise be hesitant.

Public guarantees serve as vital safeguards against specific project risks that often deter private investors, such as demand fluctuations, construction delays or regulatory interventions that could jeopardise a project’s economic viability. By providing such guarantees, a public entity significantly increases planning certainty, not only for institutional investors focused on long term, stable returns, thereby boosting project attractiveness, but also for banks providing financing for the asset.

In addition, for projects with a cross-border element, the public sector may further utilise export credit agencies and their instruments as a cornerstone of de-risking such projects. These government-backed entities support national exporters and investors by providing insurance or guarantees against a range of political and commercial risks.

This includes non-payment, expropriation, war and currency inconvertibility. Export credit agency cover typically lowers financing costs, allows for longer tenors, enables financing in otherwise riskier jurisdictions and may serve as an important ‘seal of approval’ for private lenders. It is particularly crucial for large industrial, energy and transportation projects with significant international supply chains.

By judiciously deploying these tools, project developers and financiers can transform inherently risky ventures into attractive, bankable opportunities for a diverse pool of capital.

Navigating the capital stack: attracting diverse private capital

Additionally, understanding and effectively navigating the capital stack is central to attracting the diverse pools of private capital required for infrastructure. The capital stack comprises various layers of financing – equity, senior and junior debt and hybrid capital structures.

In particular, hybrid capital solutions have gained prominence as flexible funding tools that combine equity and debt features. These instruments, such as preferred equity or structured equity, allow companies and sponsors to raise capital while balancing leverage, control and liquidity needs.

Hybrid structures can support growth initiatives without increasing traditional debt or diluting control, avoiding the overleveraging of balance sheets by injecting equity-like capital with contractual return features. For investors, hybrid capital offers an attractive risk-return profile through mechanisms such as preferred dividends, minimum return thresholds and participation rights, enabling downside protection while retaining exposure to upside.

The art of infrastructure finance lies in blending these different capital sources. The goal is to minimise the overall cost of capital, achieve an efficient risk allocation across various tranches and ultimately maximise the project’s value. This requires sophisticated financial modelling and a deep legal understanding of lender requirements and investor preferences.

The crucial role of legal and financial advisers is to craft robust, bankable documentation that clearly defines rights and obligations, appeals to all capital providers and ensures the project’s long-term viability.

Mobilising capital through structured collaboration

The demand for new and upgraded infrastructure globally presents both an immense challenge and an unparalleled opportunity. Public funds, while vital catalysts, cannot alone meet the staggering investment needs driven by the ‘four Ds’. Closing the funding gap will require deliberate and structured cooperation between the public sector and private capital providers. Failing to close it threatens to derail economic progress and to imperil not only climate targets: a future defined by crumbling grids, stifled innovation and economic stagnation.

Unlocking private capital is not a preference; it is the last viable frontier for financing the future. The comfortable inertia of traditional public-sector approaches, characterised by bureaucratic hurdles and slow-moving regulatory reform, is no longer a luxury economies can afford. Success depends on more than funding promises.

It requires robust contractual frameworks that ensure clear risk allocation and legal certainty, transparent procurement processes and predictable regulatory environments. Equally important is the strategic application of derisking instruments, with export credit agencies playing a particularly critical role in enabling cross-border and capital-intensive projects.

At the transaction level, careful structuring of the capital stack is essential. Blended finance solutions, hybrid instruments and layered risk allocation allow public capital to absorb higher-risk positions while crowding in institutional investors for long-term deployment. The time for incrementalism is over; the future demands a decisive, collaborative charge.

 

Andreas Ruthemeyer is a partner at Freshfields. He can be contacted on +49 69 27308 139 or by email: andreas.ruthemeyer@freshfields.com.

© Financier Worldwide

BY

Andreas Ruthemeyer

Freshfields

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