AI allure seduces sedate side of investing

KKR & Co

23/09/2026 17:09

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.
By Sebastian  Pellejero
NEW YORK, Sept 24 (Reuters Breakingviews) - The road to infrastructure is paved with good intentions. Funds that help build and repair backbones of society are attracting record sums as AI data centers add sex appeal to a typically humdrum area of investing. Aggressive competition, growth expectations and divergent returns, however, will chart a path back to basics.
Private pools of capital raised some $220 billion in 2025, lifting the amount earmarked for pipelines, ports, bridges and other critical physical facilities beyond $1.5 trillion, according to research outfit Preqin. Long embraced for their predictability from contracted cash flow, much of it indexed to inflation, infrastructure funds collectively have not had a losing year in a decade, index giant MSCI calculates. They returned more than 13% last year, exceeded only by venture capital.
AI investors are leaning into that reputation. Funds targeting digital infrastructure raised nearly $160 billion last year, nearly double the decade-long average, per PitchBook. Access is expensive. Data-center enterprises changed hands at an average of 25 to 30 times EBITDA in the five years through early 2024, compared with 16 times for private infrastructure broadly, property-focused CBRE Investment Management found. Equinix EQIX.O and Digital Realty DLR.N, two of the largest listed groups, trade at a little less than 24 times expected 2026 EBITDA, according to Visible Alpha.
Paying up leaves less room for error. At 25 times EBITDA, a buyer starts with a 4% yield before maintenance spending, taxes and other cash costs. Even with rents rising 3% a year, to generate a 12% return without using debt depends on robust renewal terms, rapid earnings growth or an even more generous sale price. Borrowing can magnify gains, but doesn’t bridge the baseline assumptions.
Scarcity also provides little safety. Server-farm vacancies in the eight largest US markets fell below 2% in the first half of the year, even as supply jumped 34% from a year earlier. With so little space available, investors wanting a foothold are left to build it themselves, taking on development risk. Mounting opposition, long queues for electrical connections and supply-chain delays add unpredictability. As Wes Cummins, CEO of data-center developer Applied Digital, puts it: "Delivering on time is a genuine differentiator."
Recent results are telling. As of July, the top quarter of funds raised in 2022 returned more than 21% a year, compared with less than 12% at the median and 5% for the bottom quartile. The gap was even wider for the 2023 vintage.
It's also taking longer for investors to collect. By their fifth anniversary, the median fund raised in 2019 had returned just 13 cents for every dollar committed, according to consulting firm McKinsey. For similar funds amassed a decade earlier, the comparable figure was 40 cents. More capital allocated to projects awaiting permits and power before generating income are likely to further pressure timelines.
This creates opportunities in more conventional infrastructure. As governments confront stretched balance sheets and vast construction bills, they are increasingly looking to sell or lease mature assets and recycle the proceeds into new projects. Brazil, for one, plans to auction 18 port terminals, despite a delayed timetable. Canada is seeking private capital to run airports longer-term in Toronto, Montreal, Vancouver and Calgary. India wants to raise more than $180 billion by 2030 from asset sales, concessions and private investment in roads, railways, power networks, ports and more.
Such investments are likely to keep growing, too. An estimated $100 trillion of new and upgraded infrastructure is needed through 2040 to meet rising demand for power, transport and computing capacity, McKinsey reckons.
Established structures and systems are not necessarily bargains, however. AviAlliance’s acquisition of AGS Airports last year valued the owner of Aberdeen, Glasgow and Southampton transport facilities at about 23 times EBITDA. In July, Terminal Investment Limited, backed by shipping company MSC, BlackRock’s BLK.N Global Infrastructure Partners and Singapore's GIC paid $800 million, or 20 times EBITDA, for Mexico’s Altamira port. Listed peers trade at multiples of around 9 to 14 times.
Crowds are unlikely to ease either. Some 730 infrastructure funds are in in the market seeking a combined $460 billion worldwide, Preqin tallies. KKR’s KKR.N latest dedicated fund alone, its largest ever, raised more than $19 billion. Large money managers can tackle more complicated projects that demand deep pockets and specialized expertise, but the returns required to justify the approach will accrue to a relatively narrow group.
The range of valuations also plays a big role. Infrastructure assets with enterprise values of less than $500 million have consistently traded at lower EBITDA multiples than larger ones, Aviva analysts found. Fortune may favor fund managers eyeing assets before they turn into trophies.
AI is likely to create exceptional returns for some, but it is also turning largely defensive investments into riskier ones dependent on construction, demand and exit values. In a market remade with bold ambition, the safer route to returns will be the well-traveled one.
Follow Sebastian Pellejero on LinkedIn.

(Editing by Jeffrey Goldfarb; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can click on PELLEJERO/ Sebastian.Pellejero@thomsonreuters.com))