Governments have long been the primary funding source for roads, airports and power plants, but that will soon change, BlackRock Chairman and CEO Larry Fink said in a letter to shareholders.
Private capital will become essential to fund major infrastructure projects, Fink said. That’s because of the push to lower carbon emissions, the efforts by countries to generate more of their own electric power and the massive global backlog of deferred maintenance — $2 trillion in the U.S. alone, according to a 2021 report by the American Society of Civil Engineers.
“In my nearly 50 years in finance, I’ve never seen more demand for energy infrastructure,” Fink said Monday in his yearly letter to shareholders of BlackRock, the world’s largest asset manager.
Fink’s prediction comes as the Biden administration awards billions of dollars to local and state governments for everything from lithium mines to high-speed passenger rail to electric vehicle charging stations. Meanwhile, BlackRock is already ramping up its infrastructure funding. The company in January agreed to acquire Global Infrastructure Partners for $12.5 billion.
The emerging model for financing infrastructure will be public-private partnerships, Fink said. Governments don’t have enough resources to do it on their own, and many are already saddled with mountains of debt, he said.
To be certain, private funds’ priority is to create a return for investors, not help society. Infrastructure fundraising fell to an eight-year low in 2023 because of interest rate hikes and a focus on artificial intelligence stocks, according to a report last month by CBRE Investment Management. Infrastructure funds raised $90 billion in 2023, a 49% decline from 2022, CBRE said.
However, the private sector remains critical to infrastructure funding, said Fink. BlackRock’s rivals continue to raise money for infrastructure investments. Goldman Sachs Asset Management last year raised $4 billion for a new fund targeted at infrastructure projects.
Fink cited Texas as an example of where public-private projects are likely to be active. The state already generates a higher share of energy from renewable sources like wind power than the U.S. as a whole. But Texas continues to suffer brownouts because the state’s electric grid is often overwhelmed. Private capital is needed to fund upgrades to natural gas infrastructure to assist with Texas’ electric grid issues, Fink said.
Fink highlighted one BlackRock investment as an example of how the private sector can assist governments in addressing infrastructure funding gaps.
BlackRock is investing $550 million in Occidental Petroleum’s Stratos carbon-capture facility under construction in West Texas. The direct-air capture plant is designed to pull greenhouse gases from the air and is scheduled to open in 2025.
The energy transition to renewable and clean energy has created a ripple effect in the markets, Fink said. “People are still investing heavily in decarbonization.”