When the heads of Blackstone, Apollo, Brookfield and KKR stood alongside Nvidia CEO Jensen Huang to announce a $500bn financing push for AI infrastructure, it wasn’t just to sell more chips.

The executives were making the case for treating AI data centres as an infrastructure asset class, the very same asset class that allocators are looking to increase their exposures to in portfolios.

According to data from S&P Global, private infrastructure funds raised $224bn last year, up 126% from the previous year as investors rush to allocate money. Meanwhile listed infrastructure equities continue to draw increased attention from generalist public market investors.

As wealthy investors continue to seek different ways to diversify their portfolios, infrastructure equities have been thrust into the spotlight, especially as demand for private credit slows. 

Investors want exposure to long-term structural themes that are less dependent on short-term economic cycles, according to Cora Chiu, managing director, head of investment management North Asia, Deutsche Bank – Private Bank.

“Infrastructure is a prime example, benefiting from powerful drivers such as energy transition, digitalisation, AI-related investment, and enhanced national resilience spending,” she said.

“Our current preference within alternatives remains private infrastructure. The asset class sits at the intersection of several powerful long-term investment themes, including energy transition, digitalization and the growing infrastructure requirements associated with artificial intelligence and data-driven economies.”

“We also see increasing strategic importance being placed on areas such as energy security, transportation networks and critical infrastructure that are critical to support the economy, which can create attractive investment opportunities over time.”

Private infrastructure equity has a combination of growth and resilience

“What makes infrastructure particularly compelling is its combination of growth potential and resilience,” Chiu said.

Indeed, infrastructure assets often provide essential services with long-term contractual revenues, which provides investors with predictable cash flows across market cycles.

Chiu said: “While we continue to monitor developments across private equity, private credit and hedge funds, infrastructure currently offers one of the most attractive combinations of structural growth, diversification benefits and long-term investment visibility within the alternatives universe.”

BlackRock also has an optimistic view arguing that tailwinds for infrastructure, so-called ‘mega forces’ such as the low‑carbon transition, artificial intelligence and geopolitical fragmentation, will drive multi-decade demand for the asset class.

An attractive entry point for public infrastructure equity

Despite these long-term tailwinds, “listed infrastructure valuations are trading well below long-term averages despite strong fundamentals, creating a compelling entry point,” according to a recent paper from the BlackRock Investment Institute (BII).

Infrastructure assets, which include transport, energy, digital and utility systems, typically generate long-duration cash flows that are often inflation-linked and supported by regulation or long‑term contracts.

“These characteristics give infrastructure a defensive profile, while structural forces such as AI and the low-carbon transition add earnings growth potential,” the BII said.

With this backdrop, BII’s analysis suggests that increasing infrastructure exposure could improve long-term portfolio outcomes, particularly as many portfolios remain under‑allocated.

The BII found that portfolios typically hold only around 4–5% of implicit infrastructure exposure today. Depending on risk and liquidity preferences, total exposure could rise to 10-19%, potentially enhancing portfolio efficiency and diversification.

Its analysis shows that increasing infrastructure exposure — across listed and private markets in particular — could deliver attractive risk‑adjusted returns relative to traditional equities and bonds over a 20-year horizon.

“We think infrastructure can do well under all our scenarios as it has historically been resilient in periods of market stress,” the BIII said in another recent note.

“Most investors can up their holdings materially, depending on their tolerance for illiquidity risk, or the risk of being unable to sell an investment quickly.”

An inflection point

Public infrastructure equities are also seeing their growth inflect because of the AI infrastructure that is required from them.

This is according to James Wigley, a portfolio manager at Pictet Asset Management, who said that these companies are blessed with “durable business models and high certainty of cash flows in the future.”

He pointed to US utilities as a prime example, where he argues there has been a major inflection point in their growth profile that is yet to be appreciated by the market.

“Five or six years ago, these companies were growing earnings maybe 5% or 6% per annum,” he said. “Now, table stakes, its 8% to 9%. There’s been a real inflection point because the electricity demand is growing again.”

“We’re done with the age of efficiency – getting rid of these incandescent light bulbs, putting in LEDs – that’s over. The US deindustrializing for the last 20 years – that’s over.”

“Demand is coming back for these companies, so they are reinvesting, and they have a huge inflation tailwind. When inflation is steadily growing but under control, you want to own heavy asset businesses.”

Indeed, other prominent fund managers such as Rajiv Jain, founder of GQG Partners and David Tepper of Appaloosa Management, have also recently made a foray into the space, betting on utilities and infrastructure names.

The data centre build-out

One of the main drivers of growth for US utilities is the rapid construction of data centres and the increasing cost required to build them, Wigley said.

“For example, The Southern Company, a big utility company in Georgia, their demand for electricity was basically flat. They now forecast it’s going to be 8% or 9% going forward, and we think its accelerating, driven by the huge amount of data centres coming into their territory,” he said.

“This company then needs to go and create energy to supply these data centres with the power they require. Five years ago, it used to cost roughly $1 billion dollars to build a big power plant in the US that satisfies a million homes. Now it’s $3 billion.”

“Conventionally thinking that’s terrible, right? It’s brilliant if you’re a regulated utility, because you earn a margin on your capital investment. So, the more capital you invest, the more money you make.”

This is what is driving a lot of growth in the industry, with still a large runway ahead, Wigley argued, due to the long lead time in building new power plants.

“If you order a new power plant now, you might not get it until 2030, we can see it happening: these companies are now going into this higher growth period which we don’t think is being reflected in the market by their valuations.”