Must C: U.S. Infrastructure Investment — A Bigger Role for Private Funding

In a new Must C report from Citi Research, a team led by U.S. Chief Economist Andrew Hollenhorst looks at changing approaches to how U.S. infrastructure projects are funded. These projects involve large upfront commitments of capital and difficult-to-quantify returns that may be spread out over generations. 

Traditionally, funding strategies have relied heavily on state and local borrowing and direct federal funding. “Natural monopolies” make it most efficient for governments to supply some infrastructure, either directly or in partnership with the private sector, and so create a single connected system rather than disjointed competing ones. Concerns about safety, the environment, security and geopolitics have also made governments critical players in infrastructure investment. 

But with growing budget deficits and evolving infrastructure needs, we see the private sector and potentially a new U.S. sovereign wealth fund (SWF) taking on an increasingly important role in U.S. infrastructure funding. Direct government funding has been declining for 50 years, with the U.S. government’s share of spending on nondefense infrastructure shrinking from nearly 90% of GDP to about 60%. Today simply maintaining the quality of existing U.S. infrastructure is a challenge: In 2025 the American Society of Civil Engineers gave U.S. infrastructure a grade of C, up from a D+ in 2017 but still barely a passing grade. And that improvement involved historically large post-COVID infrastructure investment programs that are unlikely to be repeated soon.

We see three funding models as potentially driving more capital into infrastructure investment. The first model is private-public partnerships, in which private actors share some risk for a project. This model has worked well in some cases, such as private toll roads, but proved difficult to scale up. The second is the new sovereign wealth fund noted above, which might use private-sector funds to leverage existing U.S. government assets, increasing the government’s ability to invest in domestic infrastructure. And the third is direct private investment in infrastructure to support new technologies, with data centers a prime example: We estimate demand related to artificial intelligence (AI) and other new technologies will contribute to data-center capacity more than doubling by 2030.

Private-public partnerships 

In this kind of partnership, the private sector takes on some portion of an infrastructure project’s risk, with the private investor receiving compensation from tolls or other revenue produced. Such an approach has made up a relatively small share of total infrastructure investment: In 2017 the Congressional Budget Office concluded that since the early 1990s at most 3% of water and transportation infrastructure investments had taken this form.

Sovereign wealth funds

A distinguishing feature of sovereign wealth funds (SWFs) is a broad mandate to obtain a return on a sovereign’s invested capital. This is different from public pension funds, whose primary objective is to satisfy long-term obligations, implying investments skewed toward long-duration, low-risk fixed-income instruments. SWFs are also distinct from direct holdings of central-bank reserves, which are typically kept in short-maturity local and foreign currency instruments so as to manage liquidity and currency risk. 

SWFs are relatively new structures, and have usually been associated with countries that run fiscal or trade surpluses, neither of which is true for U.S. at present. But there’s nothing preventing a country like the U.S. from setting up an SWF, and the idea attracted interest from the Biden administration before the Trump administration’s February announcement that it would establish a U.S. SWF, with planning due by May.

Treasury Secretary Bessent has indicated the plan is to put “assets to work.” The U.S. Treasury holds $5.7 trillion in assets, with about $3 trillion of that made up of loans and cash and other monetary assets that could be contributed standing up a new SWF. Rather than sell these assets to make investments, the Treasury could borrow against them by issuing debt. Adopting a similar leverage ratio to the European Investment Bank’s 10-to-1 would leave a U.S. SWF controlling $30 trillion in firepower. Even if the SWF primarily invested in foreign-based assets, there would still be capacity to robustly support domestic infrastructure. 

Privately-owned infrastructure 

The word “infrastructure” is often used as shorthand for “public infrastructure.” There’s no agreed-upon definition of “private infrastructure,” but we might include fixed assets that require a large upfront investment and provide a general economic service needed by other parts of the economy. Examples could be privately owned power generation, communications networks, data centers and electric-vehicle charging stations. Direct private funding of infrastructure is likely to continue to increase in coming years.