The investment needed to fund global infrastructure for the next 20 years is estimated at $60 trillion. According to current projections, only $20 trillion is allotted to meet this need. This $40 trillion funding gap underscores the need for private participation in infrastructure. With its range of risk-return profiles, strong hedges against inflation, and attractive time frames for long-term investors, infrastructure is a compelling asset class for a wide range of investors. Yet, barriers to private investment in public infrastructure remain high. While there have been successes, high-profile failures of public-private partnerships (PPPs) remind investors of their inherent risk. At the same time, the public remains skeptical of private participation in public infrastructure. Our deep experience and understanding of PPPs—including why they succeed and, in some cases, fail—coupled with our knowledge of key investment opportunities—such as energy and water—uniquely positions us to support investors and government entities participating in infrastructure projects.
What we do
McKinsey’s Infrastructure Practice serves investors—including infrastructure funds, pension plans, sovereign wealth funds, insurance companies, banks, development banks, national infrastructure banks, and high-net-worth individuals—throughout the life cycle of an investment. Working closely with colleagues in complementary practices, such as Corporate Finance and Private Equity, our global network of consultants brings deep expertise and innovative analytical tools to each project. Our Infrastructure Practice supports clients on the following topics:
Portfolio strategy
Our global presence enables us to help clients analyze the risk-adjusted attractiveness of specific geographies, asset classes, and deal types and evaluate the impact of potential opportunities. To ensure the long-term health of the portfolio, we measure opportunities against investor capabilities, risk appetite, and existing portfolio contents. We support clients in assessing possible partners and developing market-entry strategies.
Financing strategy
By applying a systematic approach, we help assess the full range of private and public options for funding infrastructure assets. Our proprietary models enable us to identify risk, advise on pricing, and assess risk mitigation approaches and their implications on financing strategy. We also help clients directly link their corporate and business unit strategies to their various financing strategies. Finally, by leveraging McKinsey’s vast network, we can facilitate connections to alternative sources of capital for our clients’ infrastructure projects.
Due diligence and transactions
In collaboration with our colleagues from the Corporate Finance practice, we identify and assess investment opportunities that are consistent with our client’s broader strategic objectives. We help clients understand the potential for value creation, including opportunities to improve an asset’s cost position, operating performance, capital project execution, regulatory management and—if possible—opportunities for revenue growth. To support the formation of strong joint ventures, consortiums, and special purpose entities, we advise client on structure, negotiations, and implementation. To ensure the long-term success of an investment, we assist clients in identifying, analyzing, and managing project risk. By deploying the McKinsey Investment Readiness Assessment (MIRA) tool, we can rapidly analyze the risk a potential target faces throughout its capital project plan.
Performance transformation
By applying design-to-value, or DTV, strategic sourcing, general and administrative benchmarking, lean operations and maintenance practices, and capital project optimization, we help clients improve the operations and overall economics of their assets. We support clients in restructuring and righting delayed and costly capital projects. Our knowledge of key functional topics, such as procurement, supply chain management, risk, and regulation, helps us advise on specialty areas and subcontractor negotiations.
Public-private partnerships
We serve both private and public entities on PPP financing, origination, development, operations, and stakeholder and regulatory management. We support private investors in the following activities: analyzing the value of infrastructure opportunities and PPPs, structuring and securing economically-sound bids, effectively and efficiently operating assets to generate value, and managing stakeholders and regulators to bolster long-term collaborative relationships. To ensure PPP projects also deliver economic and social benefits to the public, we draw on extensive client service in the public sector and our understanding of the challenges facing strained government agencies. We assist public entities in framing the case for PPP participation, developing the economic model and risk transfer solution for PPPs, managing PPPs and their various stakeholders, designing and staffing government units to review and manage PPPs, and optimizing the PPP process. Whether serving the public or private sector, we work closely with our clients to build their skills to evaluate and manage PPPs.
Recent examples of our work
- We supported an infrastructure fund in detailing its long-term investment strategy. To meet these strategic objectives, we then helped the client analyze and refocus its portfolio.
- We advised a group of investors on a suite of infrastructure investments in a developing nation. While attractive, this investment opportunity was also high-risk and we thereby supported the client in analyzing the value potential and structuring the deal to ensure the client achieved maximum value
- We assisted an European ministry of finance in designing and actualizing a PPP unit. Prior to the engagement, the group responsible for PPPs was loosely organized and functioned ad hoc. We helped the client define the unit’s value proposition, strategy, business plan, governance structure, and management processes. At the same time, we strengthened the unit’s capabilities by supporting them through live deals.