The Global Infrastructure Hub estimates a $15 trillion shortfall in infrastructure investment by 2040, encompassing everything from energy grids and transport networks to data centers and broadband. However, governments’ swelling deficits globally create financing constraints to fund these large-scale infrastructure projects. Even for the highly profitable firms of the “Magnificent Seven”, the scale of investment needed to build AI-era data centers is too great to fund from their balance sheets alone.
Private markets have extended a warm welcome to fill these funding gaps. Larry Fink, Chief Executive Officer of BlackRock, has predicted infrastructure will become the fastest-growing strategy in private markets. Steve Schwarzman of Blackstone has compared the capital formation required to build AI-related infrastructure to a modern-day “land rush.” Many other industry leaders, too, have echoed this sentiment, highlighting how the asset class sits at the nexus of the global economy’s future, while offering attractive risk-adjusted returns.
However, as private infrastructure has attracted more capital, the sector has grown markedly more sophisticated and specialized. Today, infrastructure investing exists on a wide spectrum of risk-return profiles. This expansion and diversification within the asset class has brought greater focus to how capital is deployed relative to an investor’s risk tolerance. Increasingly, clear visibility into underlying return and risk drivers has become critical, particularly as demand for exposure to powerful secular trends like the AI revolution and decarbonization could pull the asset class further up the risk curve.
Infrastructure assets broadly share a set of defining characteristics: they serve essential societal functions, benefit from inelastic demand that provide resilience during market downturns, and often generate long-term, stable cash flows. High upfront capital costs typically create natural monopolies, while complex regulatory and permitting requirements further limit new competition.
Yet beneath those surface similarities lies significant nuance. Infrastructure spans a wide array of sectors, geographies, project lifecycles, and revenue models — each with its own unique risk and return dynamics. No two assets are truly alike, and the factors that drive value and create risks can vary dramatically from one investment to the next.
Increasingly, the asset class has grown to mirror the structure of real estate. Investors can invest along a risk-return axis, ranging from low-risk “core” assets to higher-risk value-added strategies that edge into private equity territory. This evolution has broadened the opportunity set within infrastructure, giving investors greater flexibility to target returns with either bond-like income or equity-style growth.
At the lower end of the risk spectrum, core infrastructure, offers the most conservative risk-return profile in the asset class; returns are predominantly yield-driven, with investors generally targeting returns in the 4-6% range. Operational assets that are regulated, long-duration, and characterized by high operating margins and predictable revenue streams with built-in inflation protection define the investment strategy. Regulated utilities, such as water and power are among some of the common core infrastructure assets.
While mature, regulated, assets offer the appeal of proven performance and immediate cash flows upon acquisition, they come with regulatory and operational considerations. In large-scale utilities, for instance, the operational complexity of maintaining decades-old systems surfaces operational risk. Under-maintained systems can cause issues, such as equipment breakdowns, emergency repairs, and prolonged service disruptions. As much of the world’s infrastructure continues to age, these risks are becoming more pronounced.
Further, while core assets benefit from being part of a regulated environment, this regulatory structure can also introduce its own challenges. Stability is not always guaranteed, and the complexity of navigating regulations across local, regional, and international jurisdictions adds another layer of consideration, as political developments and varying regulatory frameworks influence asset performance and investor outcomes. To manage this exposure, many investors gravitate toward core assets in developed markets with well-established legal systems and strong regulatory institutions, where the rule of law offers a greater degree of certainty.
Core-plus infrastructure shares several traits with core infrastructure — such as exposure to essential services and mature, brownfield assets — but introduces a more dynamic risk-return profile. These assets are less monopolistic and more exposed to market forces. Revenues are partially driven by usage or volume factors, which introduces greater sensitivity to economic cycles and more variability in cash flows during downturns. Investors typically underwrite 8-12% returns.
While income remains a significant component of total return, core-plus strategies also present enhanced potential for capital appreciation, often through operational improvements or asset optimization. Midstream oil and gas infrastructure and GDP-sensitive assets like toll roads, airports, and seaports are common examples of assets in this strategy.
Airports offer a useful lens through which to understand the nuanced differences between core and core-plus infrastructure assets. Like core assets, airports are large-scale, long-duration investments that provide essential services, face limited competition, and benefit from high barriers to entry. However, airport revenue streams illustrate the blend of stability and variability that characterizes core-plus infrastructure.
Airport revenue models rely on retail concessions, parking operations, and property leases that are typically governed by contracts that blend fixed base rents with a percentage of sales or profits, creating exposure to consumer spending. Further, landing fees and terminal or gate rentals have contractual components but are linked to usage metrics such as flight volume and passenger traffic.
Airports also underscore how upside potential factors into core-plus infrastructure strategies. For example, an investment thesis could include a value creation element to expand commercial operations by adding international routes or optimizing existing infrastructure to serve more passengers with the same number of gates and runways.
Value-add and opportunistic infrastructure strategies occupy the riskiest end of the asset class spectrum, characterized by exposure to input price volatility, market-based revenues, enhanced competition, development risk, and an emphasis on active value creation. As a result, target returns typically fall in the 12–15% range, with income usually playing a secondary role to capital appreciation.
Battery storage and data centers — two of the hottest sectors in value-add and opportunistic infrastructure — illustrate how this corner of the asset class departs from the traditional profile of core and core-plus investments. For example, battery storage assets primarily rely on merchant-based revenue streams that require capitalizing on market arbitrage and optimizing asset operations to stack revenue across ancillary services and capacity markets.
Lacking the monopolistic advantages and high upfront capital costs typically associated with core and core-plus assets, this segment has seen a surge of new entrants, intensifying competition. As a result, maintaining profitability increasingly depends on operational expertise to preserve margin spreads.
Similarly, greenfield data center projects carry a risk profile that diverges from traditional infrastructure, driven by development, demand, and margin risks. Securing land with adequate power access, navigating intricate zoning and permitting, and ensuring contractors deliver on time, on budget, and to the idiosyncratic technical requirements of prospective tenants present major considerations.
Notable increases in water, energy, or land costs that can’t be passed on to tenants through higher rents risks squeezing margins and affecting project economics. All is to say, while value-add and opportunistic assets still serve essential functions and offer some level of demand visibility, their success relies heavily on a sponsor’s ability to scale the business, improve operations, or navigate complex greenfield development and other value drivers.
Ultimately, an asset’s position on the infrastructure risk curve hinges on core factors: its revenue model, operational maturity, location, and economic sensitivity. As the asset class grows more nuanced, some argue that traditional labels along this axis are less useful than a detailed, asset-level analysis of these underlying factors. For instance, airports, utilities, and data centers can straddle different risk categories depending on their unique drivers.
Many airports operate like the above example, with exposure to usage and volume factors. However, others have more regulated income streams that offer more predictable returns. The utilities sector — traditionally viewed as the cornerstone of core infrastructure — is also evolving, as asset owners employ a more active role in driving operational improvements and enhancing safety metrics.
Further, an asset’s risk profile can shift over its lifecycle. In the data center sector, for example, investors often pursue a “build to core” strategy, taking on significant risks during the greenfield development phase before transitioning to long-term, lucrative contracted revenues that position the asset more within a core or core-plus playbook.
For infrastructure sponsors, navigating this complexity demands access to detailed operational KPIs at the asset level. Investors allocating across a wide array of sectors must track a diverse range of sector-specific indicators — such as “passengers per flight” or “turbines under construction” — to accurately assess asset positioning on the risk curve, monitor performance, and manage risks in real time.
Even for sector specialists, the nuances within infrastructure segments demand close, granular monitoring. Data center profitability, for example, hinges on cooling efficiency. The more efficiently a facility can cool, the more densely it can stack servers, boosting productivity per square foot.
As a result, cooling efficiency is a key operational metric, as margin pressures can vary widely depending on geography and local water costs. Chronograph’s ability to offer this level of granular KPI tracking is why leading infrastructure investors globally, like Antin Infrastructure Partners, use Chronograph GP for infrastructure portfolio monitoring.
Technological innovation and global macro shifts — like digitization, decarbonization, and deglobalization — continue to fuel investor interest in the asset class. As a result, value-add strategies continue to increase their market share, reflecting rising appetite among LPs for higher-growth infrastructure investments, as many view infrastructure as a strategic way to gain exposure to these powerful themes while retaining the downside protection and diversification benefits the asset class is known for.
The AI boom is a prime example. Data centers are increasingly seen as a way to access this tailwind without assuming direct technology risk. However, a growing debate within infrastructure is whether these burgeoning opportunity sets are steadily shifting the asset class up the risk curve.
As allocators of all stripes increasingly seek or expand access to infrastructure assets, portfolio construction and monitoring take on greater importance, especially given the level of nuances in the asset class discussed. LPs must ensure that they are allocating capital toward managers that align with their risk- return objectives, including the level of downside protection offered and the excess return generated.
Ultimately, regardless of where an allocator decides to invest along the risk curve, active, granular monitoring proves essential. Post-investment, investors must ensure that asset-level performance aligns with the original thesis and broader portfolio objectives, as assets can carry hidden exposures and risks that challenge original assumptions.
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