The acquisition of the Texas-based data centre operator Aligned Data Centers by Blackrock and a number of Silicon Valley giants such as Microsoft and Nvidia – supported by Abu Dhabi and Kuwait sovereign wealth funds – shows where the action currently is in global infrastructure investment.

Investors generally expect investments in infrastructure to generate stable returns over more than a decade, with a clear risk profile. The announced investment sums are so enormous that something comparable was last seen in the infrastructure sector during the railway boom in the 19th century, Laurent Chatelin, partner and co-head of infrastructure at Eurazeo, commented at Private Markets Week in Kronberg.

„There have been many announcements in the field of infrastructure related to artificial intelligence, but most of them lie in the future – I am always a little sceptical about these big announcements,“ Chatelin warned in a panel discussion, cautioning against excessive euphoria. It will take a few years to see who is really making money.

Maria Aguilar-Wittmann, Co-Head of Infrastructure Funds and Secondaries at Allianz Global Investors (AGI), said she does not see a bubble forming here. However, investors need to be highly selective. There is no shortage of opportunities if you want to invest at the moment. She advises taking a holistic view of projects: „What does the platform, the energy infrastructure, and so on look like? There are an incredible number of variables to consider.“

Achal Arora, Managing Director of Digital Infrastructure Investments at Legal & General, which was also involved in the Aligned Data Center deal, speaks of a phase of data revolution. He is „cautiously optimistic“ that European regulators will seize this opportunity. In the current market environment, he advises paying a little more for an excellent asset rather than investing in an average asset that looks cheaper on paper: „There is definitely a drive toward quality", he said. However, Europe is currently three to four years behind the US.

According to Chatelin, the fragmented telecommunications landscape remains a challenge for Europe's digital infrastructure. In Europe, there are around 60 companies, each with relatively few customers. In the US, meanwhile, there are four major competitors. These are very different conditions. Arora believes that regulators also have a role to play here. They could help to overcome fragmentation.

The panel agreed that Europe urgently needs better infrastructure. This applies to both data centres and fibre optics. Chatelin believes that this circumstance also makes infrastructure such a resilient investment class. This has been demonstrated by the financial crisis and later the coronavirus crisis. „Electricity, communications infrastructure, and so forth are always needed – even during a crisis", he noted. This ensures that infrastructure-focused funds are reaching ever-greater volumes.

Matthias Fackler, who heads EQT’s infrastructure advisory team in Europe, is unconcerned about the possibility of a bubble forming as a result of the ever-larger infra fund deals, saying that "given the enormous demand, it's certainly not too much.“ He sees no risk of overcapacity on the data centre side for at least five years.

The prospect of long-term stability also makes the segment attractive to retail investors. AGI manager Aguilar-Wittmann described their growing importance as a kind of revolution. Meanwhile, EQT expects the infrastructure market as a whole – driven by inflows from private wealth – to grow by 12% per year over the next decade. The bulk of the fresh funds will come from private wealth. Fackler estimates that at some point, between a third and 40% of the funds will come from the retail segment.

According to Chatelin, it is important for infrastructure investors to keep their principles in mind when it comes to data centre deals. In order to ensure stable returns for clients, technology risks are avoided in the infrastructure sector. This is more challenging in digital infrastructure than in other, mostly highly regulated areas.