Key Takeaways from PEI Infrastructure Investor Network America Forum

Ropes & Gray sponsored the PEI Infrastructure Investor Network America Forum on December 4-5 in New York City, bringing together investors, fund managers and policy makers for networking and discussions around trends shaping the North American infrastructure landscape. Our partner Taylor Hart moderated a panel with speakers from Albourne Partners, Nuveen, Stonepeak and Goldman Sachs Alternatives on creating value in an uncertain investment landscape. Here are our attorneys’ insights from Taylor’s panel and others at the forum:

Investor opportunities

• Digital infrastructure has a broad investor base that is still growing. As one example, some traditional bulge bracket real estate sponsors/investors are now raising and deploying funds in digital given the nexus to real assets. Panelists expect to see more opportunities in the credit/debt space for PE/debt funds to enter the market.
• More consolidation in the industry is expected. Panelists expect to see more M&A/acquisition activity of entire managers/platforms (e.g., BlackRock’s acquisition of GIP) as some larger asset managers/sponsors seek to increase exposure in one transaction versus building organically.
• Deals are including more downside protection. Today there is as much of a focus on risk limitation/value preservation as there is on value creation. That translates into more downside protection.
• Platform building is the trend. There is a lot of platform-building versus platform-acquisition activity now. This requires more sweat equity of investors but can lead to higher returns.

Sector insights

• Energy transition and digital infrastructure are seeing the most activity. Growing demand for AI and data centers will impact the energy transition over the next decade. The demand for AI will put pressure on existing energy grids and will drive breakthroughs in energy technology and storage.
• Data center owners are looking to use renewable energy to fuel data centers. Battery and traditional energy sources are still necessary, but panelists are seeing more partnerships between renewable energy investors and data center platforms.
• Lenders are financing the power build/power generation as part of the overall financing package. For data center construction projects, this is becoming the norm, instead of the historical approach of financing only the data center building and interior fit-out.
• Nuclear power is a long-term option. While we will likely see some pockets of nuclear generation, including through small modular reactors (SMR), scaling nuclear will take time, in part because nuclear regulators are conservative. Expect natural gas and liquified natural gas (LNR) to play a larger role in the near term.

Regulatory outlook

• U.S. has been resilient and will continue to be despite geopolitical uncertainties. While government incentives like President Biden’s infrastructure bill (IRA) may be at risk with the new administration, many of these projects are in states which had voted for the new administration in the recent election and will likely continue. Also, there will be a compressed timeframe for the new administration to roll back current legislation before the mid-term elections.
• Heightened regulation is expected at the state/local level. Regulations around siting, permitting and NIMBY-ism could have an outsized impact on development.

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