The end of easy debt in the financial system has led to institutional investors being treated increasingly as “sources of capital” rather than partners in infrastructure deals, said Raphael Arndt, investment director – private markets at the Future Fund, during the first Think Tank held by the Sydney Financial Forum.

This was one outcome of the funding pressures in the infrastructure market, in which state governments needed to develop a better understanding of private investors’ needs as they sought capital to fund projects, Arndt said in a panel discussion.

“Governments need to decide what is a social need, and what the private sector can deliver in a free market […] The private sector, with its funds and sovereign wealth funds, won’t fix the problem on its own.”

The global financial crisis caused ongoing headaches for the infrastructure sector, said Stephen Knight, CEO at NSW Treasury Corporation. In particular, the withdrawal of monoline insurers has created funding pressure for deals structured as public-private partnerships.

Mark Birrell, chairman of Infrastructure Partnerships Australia, said most state governments had small capacity to take on more debt to fund deals, and since this is unlikely to change for some time, the Australian public needed to understand that private capital will play a major role in funding future infrastructure developments.