AI and Energy Transition Drive Mid-Market Infrastructure Boom, GSAM Outlook

What's New:

Despite geopolitical tensions and market volatility in early 2025, infrastructure investments are providing stability while mid-market opportunities show compelling potential, particularly in US power demand, data center development, and circular economy businesses. According to Goldman Sachs Asset Management's latest report by Philippe Camu and Tavis Cannell, these sectors offer differentiated and attractive risk-adjusted returns in the current dynamic environment.

Why It Matters:

The infrastructure landscape is being reshaped by multiple megatrends - from Trump administration policies to AI-driven power demand growth - creating unique investment opportunities while providing essential stability through economic cycles.

Big Picture Drivers:

• Power shift: US power demand is projected to grow at 2.4% CAGR through 2030 after a decade of zero growth, with data centers expected to increase from 3% to 8% of total power demand by decade's end.

• Policy resilience: Despite the Trump administration's withdrawal from the Paris Agreement and "Unleashing American Energy" order, commercial drivers of sustainable investment remain strong, with bipartisan support for IRA tax credits making a full repeal unlikely.

• Mid-market advantage: Over 50% of 2023's infrastructure fundraising went to funds raising over $9 billion, creating deployment challenges for large-cap managers and making the less crowded mid-market ($400M-$2B enterprise value) more attractive.

• Circular economy: Only 7% of used materials are currently cycled back into the economy, while approximately 120 million tons of landfill capacity will close by 2030, necessitating solutions that could contribute up to 45% of global carbon emission reductions to meet net zero targets.

By The Numbers:

• During the first Trump administration, installed wind and solar capacity grew 60% (from 104GW to 167GW)

• AI will represent about 20% of overall data center power demand by 2030

• Retail and wealth fundraising via semi-liquid products in alternatives has grown to ~$361 billion at a 57% 4-year CAGR

• Infrastructure fundraising fell below $100 billion in both 2023 and 2024, compared to a ~$140 billion annual average over the previous five years

Key Trends to Watch:

• Data center investments are evolving beyond development-oriented plays to include opportunities for recycling capital through sales of stabilized assets to yield-focused investors, offering compelling core/core+ investment characteristics.

• Circular economy investments exhibit attractive infrastructure characteristics with high barriers to entry, contracted business models, and resiliency through economic cycles including the global financial crisis and COVID-19 crisis.

• European infrastructure presents opportunities despite regional challenges, with green energy initiatives, digital infrastructure needs, and aging transport and utility systems creating openings for private capital.

• Inflation management will be crucial as January's CPI data and potential impacts from new tariffs suggest persistent inflation may remain a significant risk that infrastructure owners must navigate.

The Wrap:

Success in 2025's infrastructure market will depend on selective manager approaches, with those demonstrating strong reputations, market relationships, and clear partnership mindsets best positioned to capitalize on mid-market opportunities while navigating macroeconomic uncertainty.