Interview
How AI, tariffs, and the energy transition are reshaping infrastructure investing
- Institutional investors currently hold approximately 6% to 7% of total assets in infrastructure, a figure that has grown progressively over the past 10-plus years.
- The asset class is projected to deliver low correlation with public equities, fixed income, and other private assets, while offering resilience during economic uncertainty and high inflation with nine percent compounded returns since early 2022.
- Many infrastructure strategies target mid-teens plus returns when compounded over five to 10-year periods, contrasting with recent performance in buyout private equity (five percent) and real estate (minus two percent).
- The market composition is shifting significantly, with energy, energy transition, and digital infrastructure becoming the dominant segments, while transport's share has fallen from two-thirds 15 years ago to sub-20% in recent investment volumes.
- Capital markets for stabilized data center assets are expected to remain underdeveloped in the near term, prompting investor scrutiny regarding residual value and asset lifespan over five, 10, or 15-year horizons.
- Power demand is projected to enter a secular growth phase of three to four percent annually, reversing a 20-year flat trend and creating substantial requirements for power infrastructure investment.
- Closed-ended funds typically target five to seven-year ownership periods for value creation, whereas evergreen vehicles aim for compounding capital appreciation with slightly lower return targets, particularly in private wealth segments.
- A full repeal of the Inflation Reduction Act is considered unlikely, though specific areas such as offshore wind, EV charging incentives, and Department of Energy loans may be tweaked or partially repealed.
- Regulatory clarity from the administration and Congress is anticipated within the next one to two months, potentially renewing investor confidence for long-term capital deployment.
- Utility-scale and distributed generation are identified as high-interest segments in the U.S. and internationally, with distributed generation offering cost advantages by bypassing transmission and distribution needs.
- Project interconnection to the broader grid remains the primary constraint for data centers and energy transition projects, while Europe is projected to match U.S. market size and attract investor sentiment within the next four to five months.
- Significant investment needs exist in emerging markets like India and the Middle East, characterized by distinct political and foreign currency risks, alongside high-value opportunities in Northern European circular economy assets that often require upgrading 30 to 50-year-old infrastructure.
- Modular building projects are expected to provide 30-year lifespans with long-term contracts and high energy efficiency, while most managers have likely mitigated short-term tariff risks by preordering equipment for 2025 build plans.
- The long-term trajectory of tariffs will influence supply chain reorientation, while public-to-private activity is expected to increase due to market volatility and the potential for corporate carve-outs or spin-outs.
- The sector is positioned to align with mega-trends in decarbonization, digitalization, and deglobalization, driving investment across these themes globally.