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May 1, 2025 | 8 min read
Historically the infrastructure asset class has been dominated by the largest, most established general partners (GPs). However, limited partners (LPs) can potentially increase risk-adjusted returns by capitalizing on the expanding infrastructure middle market,1 which similar to the longer-term trend across private equity, has on average, broadly outperformed the large-cap segment while also offering LPs enhanced liquidity.
Below, we examine infrastructure’s evolving middle-market GP landscape, explain why exposure to the middle market can be an important addition to an infrastructure portfolio, and share why we believe secondary investments offer one of the most effective ways to target this opportunity-rich segment while limiting downside risk.
Private infrastructure is a large and dynamic market which has amassed the bulk of its more than $1.5 trillion AUM rapidly over the past decade.2 This rise has been largely driven by a small group of the largest and most tenured infrastructure GPs, which have attracted over 50% of the capital raised over the past five years.3 These established GPs rapidly expanded their flagship fund sizes (many exceeding $10 billion and some exceeding $20 billion) and added adjacent fund strategies with limited competition from new entrants.
The definition of infrastructure has expanded over the past decade in response to secular trends focused on changing demographics, government policy, advancing technology, and energy transition. With the broadening scope of what is considered infrastructure, there has been a proliferation of new GPs and new strategies launched by existing GPs. Most of these new GPs and strategies are targeting the middle market. Despite the historical capital raising dominance of the large-cap segment, infrastructure’s middle market represents a vast opportunity set accounting for nearly 95% of infrastructure’s transaction volume and over 90% of active GPs by count.4
Any meaningful analysis of the middle-market infrastructure landscape must include emerging managers and sector specialists. Emerging managers—those investing from their first or second fund (GP Strategy Fund I-II)—comprise over half of the middle-market infrastructure segment. This dominance stems from two trends: established managers (Fund III+) graduating to large-cap segments, and the recent surge of new GP entrants launching their initial strategies. Sector specialists have similarly captured the middle market, representing over half of all funds closed in the past five years.5 Power, renewables, energy transition, midstream, and digital infrastructure specialists particularly dominate the value-add segment and the North America GP landscape.
As illustrated in the chart below, mid-market GPs are accessing all segments across the expanding infrastructure landscape. The largest segment of GPs within infrastructure is core-plus, which we have divided below by geography between European and North American, and given the high percentage of emerging managers in North America, we have also delineated the established and emerging universe of GPs in the region. GPs in the core-plus segment are largely investing across a mix of sub-sectors into platform companies whose operating assets and predictable cash flows provide opportunities for value creation through operational improvements, selective development, and M&A. Additional segments include a handful of core strategies and a relatively nascent segment of strategies which include growth strategies investing in earlier stage and infrastructure-adjacent companies, shown in the chart as “Global new infra and asset light.”
Source: Preqin and HarbourVest proprietary database of middle-market closed-end, commingled infrastructure funds with an OECD focus as of December 31, 2024. Excludes open-end funds, fund-of-funds, special purpose vehicles, and co-investment vehicles. Diversified strategies are broadly defined as funds investing in multiple broad infrastructure categories such as transport, digital, renewables, etc. Number of distinct GP fund strategies is based on the number of different strategies offered by a specific GP and not the number of individual funds offered by a GP. Bubble size represents approximate market size by capitalization.
There is also a growing number of sector specialists responding to the expanding infrastructure opportunity set. Sector specialization can allow middle-market GPs to drive value creation or market sophistication akin to a larger platform while targeting the opportunity-rich middle market. There are also some sector specialist GPs that employ a highly specialized direct operator model developing and managing assets such as data centers or power generation facilities. As displayed in the chart below, sector specialists span the full risk/return spectrum, from strategies investing in core infrastructure to asset light business models servicing infrastructure assets (shown as “Climate hybrid private equity and infrastructure” and “Climate technologies and emerging market segments” in the bubbles below.)
Source: Preqin and HarbourVest proprietary database of middle market closed-end, commingled infrastructure and private equity funds with an OECD focus as of December 31, 2024. Excludes open-end funds, fund-of-funds, special purpose vehicles, and co-investment vehicles. Specialist GPs are defined as those with over 80% of capital deployed into one sub-segment of infrastructure such as digital infrastructure. These would be classified as specialists even if they may invest across fiber, towers, and data centers. Number of distinct GP fund strategies is based on the number of different strategies offered by a specific GP and not the number of individual funds offered by a GP. Bubble size represents approximate market size by capitalization.
This array of middle-market specialist investment strategies is offering unique opportunities across sectors with innovative approaches, value creation strategies, and liquidity options that are differentiated from traditional infrastructure large-cap investments.
We believe infrastructure’s unique middle-market characteristics have helped drive its superior return potential and differentiated liquidity profile. As displayed in the charts below, the middle market has outperformed the large-cap segment on a return basis. Average IRRs for vintages between 2013 and 2022 have outperformed by 230 basis points and the top quartile has performed by 320 basis points. TVPIs have outperformed by 0.16x on average and for the top quartile. We believe outperformance in the middle market has been driven by the combination of better entry valuations due to its fragmented opportunity set, and more abundant levers for value creation available to smaller and less professionalized companies.
Source: HarbourVest proprietary data and Preqin data available as of December 31, 2024. Includes closed-end, commingled infrastructure funds with an OECD primary focus. Middle market represents funds with a final fund size between $200 million and $5 billion. Large cap represents funds with a final fund size of over $5 billion. Percentages represent the cutoffs for top quartile, median, and bottom quartile performers and the ● inside the box denotes the average of the dataset. Not representative of any HarbourVest fund, account, or experience. Past performance is not a guarantee of future results.
While mark-to-market performance is an important part of the story, distributions must also be considered. Our analysis looks at maturing infrastructure middle-market funds within four to seven years from inception that are in the early stages of exiting assets to highlight the impact of recent market volatility on liquidity and exits. Displayed in the chart below, on average, middle-market funds distributed twice as much to investors based on paid-in-capital compared to their larger peers at a similar stage of maturity. This illustrates how smaller companies can have greater options around paths to exit than large-cap companies, which are generally more reliant on capital markets, either directly through IPOs or indirectly with strategic and/or financial buyers that require support of large debt issuances.
Source: HarbourVest proprietary data and Preqin data available as of December 31, 2024. Includes closed end, commingled infrastructure funds with an OECD primary focus. Middle market represents funds with a final fund size between $200 million and $5 billion. Large cap represents funds with a final fund size of over $5 billion. Not representative of any HarbourVest fund, account, or experience. Past performance is not a guaranteed of future results.
Infrastructure’s middle market can offer investors greater opportunity in terms of returns and liquidity but, as seen in the charts above, it also suffers from a wider dispersion of returns and lower bottom quartile potential. So, while the middle-market opportunity set is vast, accessing its alpha potential requires greater manager selection skill and deep market coverage.
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Middle-market deals can provide access to parts of the infrastructure market that are often difficult for larger GPs to penetrate, such as platform buildout strategies. And the middle market houses a high percentage of specialist GPs, offering the ability to rely on industry-specific expertise and established sourcing networks. However, engaging in this market requires a high amount of manager selection skill which can be challenging to accomplish when evaluating emerging managers with shorter track records or highly specialized strategies with unique market characteristics.
By tapping into the middle-market segment through secondary investments, investors can access seasoned assets, benefit from differentiated sourcing, and potentially earn premium returns with mitigated risks. We believe selecting a top secondary manager to access the middle market is paramount, as they have the expertise, resources, deep relationships, and flexibility to pursue and structure different transaction types.
HarbourVest Partners, LLC (“HarbourVest”) is a registered investment adviser under the Investment Advisers Act of 1940. This material is solely for informational purposes; the information should not be viewed as a current or past recommendation or an offer to sell or the solicitation to buy securities or adopt any investment strategy. In addition, the information contained in this document (i) may not be relied upon by any current or prospective investor and (ii) has not been prepared for marketing purposes. In all cases, interested parties should conduct their own investigation and analysis of the any information set forth herein and consult with their own advisors. HarbourVest has not acted in any investment advisory, brokerage or similar capacity by virtue of supplying this information. The opinions expressed herein represent the current, good faith views of the author(s) at the time of publication, are not definitive investment advice, and should not be relied upon as such. This material has been developed internally and/or obtained from sources believed to be reliable; however, HarbourVest does not guarantee the accuracy, adequacy or completeness of such information. The information is subject to change without notice and HarbourVest has no obligation to update you. There is no assurance that any events or projections will occur, and outcomes may be significantly different than the opinions shown here. This information, including any projections concerning financial market performance, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. The information contained herein must be kept strictly confidential and may not be reproduced or redistributed in any format without the express written approval of HarbourVest.
Nothing herein should be construed as a solicitation, offer, recommendation, representation of suitability, legal advice, tax advice, or endorsement of any security or investment and should not be relied upon by you in evaluating the merits of investing in HarbourVest funds or in any other Investment decision.
Infrastructure Strategy Risks. Investments in infrastructure and real assets entail certain specific risks, including fluctuations of commodity prices, uncertainty of reserves, exploration and development risks, uncertainty in the developing alternative energy markets and technology, and governmental support and regulations. Infrastructure strategies may be exposed to substantial risk of loss from environmental claims arising in respect of its investments. Furthermore, changes in environmental laws or regulations or the environmental condition of an investment could create liabilities that did not exist at the time of its acquisition and that could not have been foreseen. Investments in natural resources and energy services companies, including mining and oilfield service, product manufacturing, and technology businesses that are involved in the preparation, drilling, completion, production, and abandonment of oil and gas wells and mines could be subject to fluctuations in the demand for their services based on commodity prices, the macroeconomic environment, customer concentration, availability of alternative technologies or services and political or market pressures favoring these alternatives. Environmental groups could protest about the development or operation of infrastructure assets, which might induce government action to the detriment of the Fund.
Secondary Investing Risk. Secondary market transactions may impose higher costs than other investments and may require a fund to assume contingent liabilities associated with events occurring prior to the Fund’s investment. The overall performance of an Underlying Portfolio Fund acquired through a secondary transaction will depend in large part on the purchase price paid. In addition, a fund will generally not have any ability to negotiate terms with respect to interests in Underlying Portfolio Funds invested in through secondary market transactions.
“Professional Investor” under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the “SFO”) and its subsidiary legislation) means:
(a) any recognised exchange company, recognised clearing house, recognised exchange controller or recognised investor compensation company, or any person authorised to provide automated trading services under section 95(2) of the SFO;
(b) any intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong;
(c) any authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;
(d) any insurer authorized under the Insurance Ordinance (Cap. 41 of the Laws of Hong Kong), or any other person carrying on insurance business and regulated under the law of any place outside Hong Kong;
(e) any scheme which-
(i) is a collective investment scheme authorised under section 104 of the SFO; or
(ii) is similarly constituted under the law of any place outside Hong Kong and, if it is regulated under the law of such place, is permitted to be operated under the law of such place,
or any person by whom any such scheme is operated;
(f) any registered scheme as defined in section 2(1) of the Mandatory Provident Fund Schemes Ordinance (Cap. 485 of the Laws of Hong Kong), or its constituent fund as defined in section 2 of the Mandatory Provident Fund Schemes (General) Regulation (Cap. 485A of the Laws of Hong Kong), or any person who, in relation to any such registered scheme, is an approved trustee or service provider as defined in section 2(1) of that Ordinance or who is an investment manager of any such registered scheme or constituent fund;
(g) any scheme which-
(i) is a registered scheme as defined in section 2(1) of the Occupational Retirement Schemes Ordinance (Cap. 426 of the Laws of Hong Kong); or
(ii) is an offshore scheme as defined in section 2(1) of that Ordinance and, if it is regulated under the law of the place in which it is domiciled, is permitted to be operated under the law of such place,
or any person who, in relation to any such scheme, is an administrator as defined in section 2(1) of that Ordinance;
(h) any government (other than a municipal government authority), any institution which performs the functions of a central bank, or any multilateral agency;
(i) except for the purposes of Schedule 5 to the SFO, any corporation which is-
(i) a wholly owned subsidiary of-
(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or
(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;
(ii) a holding company which holds all the issued share capital of-
(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or
(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong; or
(iii) any other wholly owned subsidiary of a holding company referred to in subparagraph (ii); or
(j) any person of a class which is prescribed by rules made under section 397 of the SFO for the purposes of this paragraph as within the meaning of this definition for the purposes of the provisions of the SFO, or to the extent that it is prescribed by rules so made as within the meaning of this definition for the purposes of any provision of the SFO.
The first of such classes of additional “professional investor”, under the Securities and Futures (Professional Investor) Rules (Cap. 571D of the Laws of Hong Kong), are:
(k) any trust corporation (registered under Part VIII of the Trustee Ordinance (Cap. 29 of the Laws of Hong Kong) or the equivalent overseas) having been entrusted under the trust or trusts of which it acts as a trustee with total assets of not less than HK$40 million or its equivalent in any foreign currency at the relevant date (see below) or-
(i) as stated in the most recent audited financial statement prepared-
(A) in respect of the trust corporation; and
(B) within 16 months before the relevant date;
(ii) as ascertained by referring to one or more audited financial statements, each being the most recent audited financial statement, prepared-
(A) in respect of the trust or any of the trust; and
(B) within 16 months before the relevant date; or
(iii) as ascertained by referring to one or more custodian (see below) statements issued to the trust corporation-
(A) in respect of the trust or any of the trusts; and
(B) within 12 months before the relevant date;
(l) any individual, either alone or with any of his associates (the spouse or any child) on a joint account, having a portfolio (see below) of not less than HK$8 million or its equivalent in any foreign currency at the relevant date or-
(i) as stated in a certificate issued by an auditor or a certified public accountant of the individual within 12 months before the relevant date; or
(ii) as ascertained by referring to one or more custodian statements issued to the individual (either alone or with the associate) within 12 months before the relevant date;
(m) any corporation or partnership having-
(i) a portfolio of not less than HK$8 million or its equivalent in any foreign currency; or
(ii) total assets of not less than HK$40 million or its equivalent in any foreign currency, at the relevant date, or as ascertained by referring to-
(iii) the most recent audited financial statement prepared-
(A) in respect of the corporation or partnership (as the case may be); and
(B) within 16 months before the relevant date; or
(iv) one or more custodian statements issued to the corporation or partnership (as the case may be) within 12 months before the relevant date; and
(n) any corporation the sole business of which is to hold investments and which at the relevant date is wholly owned by any one or more of the following persons-
(i) a trust corporation that falls within the description in paragraph (k);
(ii) an individual who, either alone or with any of his or her associates on a joint account, falls within the description in paragraph (k);
(iii) a corporation that falls within the description in paragraph (m);
(iv) a partnership that falls within the description in paragraph (m).
For the purposes of paragraphs (k) to (n) above:
An institutional investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:
(a) the Singapore Government;
(b) a statutory board as may be prescribed by regulations made under section 341 of the SFA, as prescribed in the Second Schedule of the Securities and Futures (Classes of Investors) Regulations 2018;
(c) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is —
(i) to manage its own funds;
(ii) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or
(iii) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country;
(d) any entity —
(i) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and
(ii) whose funds are managed by an entity mentioned in sub‑paragraph (c);
(e) a bank that is licensed under the Banking Act 1970;
(f) a merchant bank that is licensed under the Banking Act 1970;
(g) a finance company that is licensed under the Finance Companies Act 1967;
(h) a company or co‑operative society that is licensed under the Insurance Act 1966 to carry on insurance business in Singapore;
(i) a company licensed under the Trust Companies Act 2005;
(j) a holder of a capital markets services licence;
(k) an approved exchange;
(l) a recognised market operator;
(m) an approved clearing house;
(n) a recognised clearing house;
(o) a licensed trade repository;
(p) a licensed foreign trade repository;
(q) an approved holding company;
(r) a Depository as defined in section 81SF of the SFA;
(s) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere;
(t) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors;
(u) a designated market‑maker as defined in paragraph 1 of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations;
(v) a headquarters company or Finance and Treasury Centre which carries on a class of business involving fund management, where such business has been approved as a qualifying service in relation to that headquarters company or Finance and Treasury Centre under section 43D(2)(a) or 43E(2)(a) of the Income Tax Act 1947;
(w) a person who undertakes fund management activity (whether in Singapore or elsewhere) on behalf of not more than 30 qualified investors;
(x) a Service Company (as defined in regulation 2 of the Insurance (Lloyd’s Asia Scheme) Regulations) which carries on business as an agent of a member of Lloyd’s;
(y) a corporation the entire share capital of which is owned by an institutional investor or by persons all of whom are institutional investors;
(z) a partnership (other than a limited liability partnership within the meaning of the Limited Liability Partnerships Act 2005) in which each partner is an institutional investor.
An accredited investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:
(i) an individual —
(A) whose net personal assets exceed in value $2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;
(B) whose financial assets (net of any related liabilities) exceed in value $1 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount, where “financial asset” means —
(BA) a deposit as defined in section 4B of the Banking Act 1970;
(BB) an investment product as defined in section 2(1) of the Financial Advisers Act 2001; or
(BC) any other asset as may be prescribed by regulations made under section 341; or
(C) whose income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;
(ii) a corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by —
(A) the most recent audited balance sheet of the corporation; or
(B) where the corporation is not required to prepare audited accounts regularly, a balance sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance sheet, which date must be within the preceding 12 months;
(iii) A trustee of a trust which all the beneficiaries are accredited investors; or
(iv) A trustee of a trust which the subject matter exceeds S$10 million; or
(v) An entity (other than a corporation) with net assets exceeding S$10 million (or its equivalent in a foreign currency) in value. “Entity” includes an unincorporated association, a partnership and the government of any state, but does not include a trust; or
(vi) A partnership (other than a limited liability partnership) in which every partner is an accredited investor; or
(vii) A corporation which the entire share capital is owned by one or more persons, all of whom are accredited investors.
Continuation solutions encompass a host of transaction types in which a GP secures interim liquidity and/or additional primary capital for their LPs in a strongly performing asset, or set of assets, that the GP will continue to own and control. Specifically, they include continuation funds, new funds created by GPs for the purpose of acquiring the asset(s) that continue to be managed by the same GP and capitalized by one or several secondary buyers, or equity recapitalizations involving a direct equity or structured equity investment into a portfolio company. These transactions can also include a parallel investment from the GP’s latest fund into that same pool of assets (a “cross-fund trade”).
