The 2008 financial crisis triggered a fundamental shift in infrastructure investing. The pre-crisis model, driven by investment banks, prioritized deal velocity. The post-crisis rebirth adopted a private equity mindset, emphasizing deal quality, rigorous diligence, and a strong bias against doing a deal. This cultural change was essential for the asset class's maturation.
While essential infrastructure assets are almost guaranteed to be more valuable in ten years, their path is never a straight line. Investors must structure financing to withstand inevitable downturns, such as the GFC or COVID. As Warren Buffett says, 'a string of great returns followed by a zero is a zero,' highlighting the need for resilient capital structures to capture long-term value.
The US market, initially overlooked, proved more dynamic for infrastructure investors. Unlike global markets dominated by rigid government auctions, the prevalence of privately-owned US assets allowed for creative structuring, exclusive negotiations, and relationship-based deals, avoiding a pure 'cost of capital shootout'. This model of sourcing has now become the global standard.
For three decades, US power demand was stagnant due to energy efficiency and offshoring. The AI build-out has abruptly ended this era, driving unprecedented ~5% annual growth. This demand shock has created a massive bottleneck in the supply chain for critical hardware, with a new power generation unit ordered today not expected for delivery until 2029.
To navigate the AI boom, Stonepeak assesses data center risk with a two-axis matrix: customer creditworthiness (e.g., Google vs. OpenAI) and location desirability (e.g., Northern Virginia vs. a remote farm). This framework clearly distinguishes between a safe, long-term contract with a tech giant in a prime market and a speculative bet on a cash-burning startup in an unproven location.
In the current market, buying existing data center platforms means accepting very low cap rates of 2-3%. Stonepeak sees a better risk/reward proposition in building new capacity. This strategy, while slower and more complex, can deliver much higher returns—such as 9-10% cap rates in the US—with strong, long-term customer contracts secured from the outset.