The role of private credit in infrastructure financing is “undergoing major expansion”, according to a new Fitch Ratings market research report.

The ratings agency noted that infrastructure is increasingly “at the centre” of global credit markets, with large private credit managers, such as Ares and Blackstone, “pivoting in” to infrastructure finance.

The report, titled ‘The Future of Infrastructure Finance: Convergence, New Capital and Investor Appetite’, identified that infrastructure finance is being reshaped by “a powerful convergence” of corporate debt, project finance and structured finance.

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Whereas publicly-financed infrastructure projects have been more heavily concentrated in social infrastructure, transport and power generation sectors, private credit lenders have historically been more likely to lend to non-utility infrastructure, including transport, renewables, battery storage and digital sectors, Fitch Ratings said.

The outcome has been greater asset diversification than transactions in the public market.

Meanwhile, insurers and pension funds are among the “most significant” structural sources of infrastructure capital, the report found.

“Insurers are increasingly preferring infrastructure debt over equity for liability-matching and capital efficiency under Solvency II and risk-based capital frameworks. EMEA insurers are leading, partly to substitute for reduced US and government bond exposure,” Fitch Ratings stated.

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It identified energy transition infrastructure, including renewables, grids and storage, as a primary sub-theme.

However, deal flow and manager access remain constraints for mid-size insurers in particular.

While insurers’ allocations to infrastructure assets have been low, historically, pension funds are “one of the most established institutional allocators in infrastructure investment”.

According to Fitch Ratings, in addition to “resilient” risk-adjusted returns, infrastructure’s long asset lives, contractual cash flows, and inflation-linked revenue structures “support the ultimate goal of generating returns to fund current and future pension obligations”.

“Institutional demand is broadening as insurers, pension funds, sovereign wealth funds and family offices increase their focus on infrastructure,” said Monsur Hussain, head of markets research at Fitch. “Insurers are showing growing appetite for private infrastructure debt, supported by liability-matching needs and capital efficiency under solvency and risk-based capital regimes, while pension funds and sovereign wealth funds continue to provide strategic, long-term capital.”

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