Infrastructure Quarterly: Q1 2025

Stability across all time frames

Listed infrastructure and marked-to-market unlisted infrastructure indices registered a sharp rebound on the back of ongoing interest rate cuts (Figure 1). A deeper analysis of unlisted infrastructure indices reveals that they maintain a relatively stable return run rate and exhibit lower sensitivity to financial turbulence and equity market volatility. Unlisted infrastructure proves to be resilient, with performance over the past year on par with the 10-year track record. In this edition, we zoom in on the MSCI Private Infrastructure index, even though we still monitor all main unlisted infrastructure indices (EDHECinfra300 and Cambridge Associates Infrastructure Fund Index).

Geopolitical risk has been trending at high levels in recent months. This may prompt companies to adjust their operations and restructure supply chains. Geopolitical tensions and global trade barriers are likely to impact inflation and influence people's discretionary spending decisions. International travel patterns and transport segments such as ports, airports and rail may be affected in the short-term.

High geopolitical risk has traditionally been associated with lower equity returns, but the opposite appears to be true for infrastructure. During periods of uncertainty—such as the Global Financial Crisis, the pandemic and rate hikes—the unlisted infrastructure index briefly dipped before recovering. Overall, the MSCI Private Infrastructure index demonstrated both steady capital and income growth (Figure 2).

Figure 1: Infrastructure, bonds and equities annualized total returns (%)

Figure 2: MSCI Private Infrastructure index rolling one-year returns

The low levels of capital raised in 2024, slightly shy of $100 billion, may indicate that the market is entering a new era of slower but steady growth in assets under management (Figure 3). A primary reason behind the challenging environment remains constrained liquidity reducing reinvestment opportunities. Over the past two years, the broad slowdown in private market deals and exits delayed capital distributions to finance new funds, challenging the fundraising process. Consequently, the time spent on the road has nearly doubled compared to 2021, as reported by Infrastructure Investor.

Looking ahead, the largest funds in the market are expected to raise over $140 billion as per Preqin Global Report Infrastructure 2025. While dry powder has declined to 24% of infrastructure assets under management, it is still substantial at $335 billion on the back of a large influx of capital in 2022. This capital reserve is sufficient to meet near-term capital calls and sustain a robust level of investment activity.

Investors continue to show a strong appetite for infrastructure. While the extremes of investors allocating more or less capital have decreased, the proportion of LPs intending to allocate the same amount of capital has increased by 10% (Infrastructure Investor, 2025). The renewed level of confidence could set a positive tone in the market leading to increased investment activity and capital.

Figure 3: Number of infrastructure funds and fundraising volume ($ billion)

The macroeconomic shift with higher-for-longer interest rates prompted institutional investors to transition toward higher-risk strategies in pursuit of higher returns (Figure 4). However, investors still seek exposure to core-plus infrastructure as evidenced by 15% of the pool intending to contribute additional capital and 68% planning to maintain their current allocation in 2025 (Figure 5). Preqin anticipates that the share of AUM within core and core-plus will maintain a steady level of approximately 60% through 2029.²

Figure 4: Capital raised per strategy focus

Figure 5: LP strategic infrastructure investment appetite for 2025

Power and utilities

Recent election outcomes in the U.S., Germany and other countries focused investors’ minds on energy policies and favored types of energy investment. While policies and incentives are important to set the direction and pace, the drivers of power growth remain the same. Globally, data centers, onshoring of manufacturing and electric vehicles are competing for connections to the power grid.

It takes time to change the energy mix in a meaningful way. An example of timeframe and cost is nuclear generation which is projected to reach a global peak in 2025. Governments acknowledge the advantages of nuclear energy as a baseload and low-emissions electricity source, enhancing the reliability of power systems. Numerous countries are advancing nuclear power initiatives with 63 nuclear reactors under development, representing a combined capacity of 70 gigawatts (GW) (International Energy Agency, 2025). Government support is critical for the cost competitiveness of nuclear energy as many large-scale nuclear projects were delivered above cost and budget.

The same uncertainties exist around the cost of building small modular reactors (SMRs). The International Energy Agency expects that the U.S. and China may emerge as market leaders in SMR deployment (Figure 7) with several other nations following suit. However, this is not projected to happen until 2035 with a potentially rapid deployment complementing renewable energy growth in the 2040s. Lower SMR costs could be more pertinent in the U.S. due to a strong interest in reducing electricity bills.

Figure 7: SMR installed capacity forecast, 2025-2050 (GW, gigawatts)

Separately, devastating wildfires broke out in Southern California at the start of 2025. While the cause is still under investigation, this event shows that U.S. utility companies have become more exposed to wildfire risks and face increased litigation costs and infrastructure damages. Utilities have begun investing in mitigation strategies such as undergrounding power lines. According to University of California Berkeley, California’s three largest utilities will soon invest $9 billion annually in wildfire protective measures, with consumers bearing the majority of the costs.³

Renewables

In 2024, investment in clean energy globally hit a record of $2.1 trillion with 11% growth compared to the previous year, according to BNEF. China accounts for two-thirds of the worldwide capacity increase as was the case in previous years. Growth is moderating with electrified transport taking over investment in renewable energy. Energy storage is a rapid ‘newcomer’ on the back of a sharp decrease in the cost of lithium-ion batteries and an increase in energy density.

There is a growing divergence in clean energy policies in the U.S. and Europe. The European Union remains stalwart with recent revisions in the Renewable Energy Directive to enhance energy security and tackle climate change, leading to a potential strong rise in deals. In the U.S., clean energy and transportation have continued their growth trend, but uncertainties surrounding the future of tax credit subsidies under the Inflation Reduction Act could impede their progress.

Despite a more complex environment, renewable energy is the fastest-growing source of new generation capacity in the U.S., solar, wind and storage account for almost all new planned power plants in 2025 and 2026 (Figure 8). Over the past several years, the renewable energy sector in the U.S. has experienced significant growth and transformation, largely driven by policy changes and market demand. Trade Group SEIA stated that since the implementation of the Inflation Reduction Act in 2022, there was a remarkable 600% increase in U.S. domestic solar panel production. Buyer demand continues to grow as reflected in the gradual increase in U.S. renewable PPA prices.

Figure 8: Annual change in U.S. electric power sector capacity (GW - gigawatts) based on planned capacity

Digital infrastructure

The release of the DeepSeek R1 large language model (LLM) caused significant market volatility. While short-term losses were evident with the sell-off of energy, infrastructure and technology shares, the long-term benefits of the new Generative AI model can be substantial. DeepSeek has gained prominence due to its reported low power usage and minimal training requirements. The model employs innovative methodologies, such as a mixture of experts (MoE) architecture to activate parameters as needed, resulting in performance equal to or better than U.S. foundation models (IoT Analytics, February 5, 2025). These advantages can lead to faster AI adoption requiring more data center capacity for AI inferencing (the stage during which already trained AI models reason and draw conclusions).

While it is too early to assess DeepSeek’s long-term implications, Big Tech companies are facing a new wave of competition from open and cost-efficient models. Generative AI technology breaks barriers with its advanced capabilities, encouraging start-ups to enter the market. One risk that has been identified to data centers is hyperscale strategies and their need for data center physical infrastructure and power. The leading Big Tech companies remain steadfast in their projected expenditure. AI is only one driver of data center demand, projected to account for about 20% of the total power requirement by 2030 (Figure 9). The overall growth is driven by the increasing volume of data, computational requirements, cloud migration and the scaling of new technologies.

Figure 9: Global data center power demand (in terawatt-hours)

Transport

Transport infrastructure continues to benefit from stable mobility trends with traffic volumes linked to economic growth rates. Geopolitical tensions and global trade barriers typically impact transport segments exposed to cross-border movements of passengers and cargo, such as international air travel, ports and rail. Similarly, global events can affect international travel patterns in the short term. Despite high levels of geopolitical risk, the desire for international travel has strengthened based on the latest passenger volume growth. Airline demand for both domestic and international travel increased by 10.4% in 2024, surpassing the 2019 peak. International passenger volume alone increased by 10.6% in 2024 (Figure 10).

This strong demand necessitates record efficiency, and the percentage of seats filled averaged 83.5% in 2024, setting a new high. The growth in aviation has a domino effect across various industries, impacting job creation, market development and innovation. However, conflicts and strained airspace continue to affect the free flow of traffic in certain regions. The global network is being reshaped, with more passengers traveling through Middle Eastern hubs. Compared to pre-pandemic periods, Asia Pacific routes are experiencing lower traffic. This decline is attributed to reduced international tourism demand from China, diplomatic tensions with the U.S. and airspace restrictions (IATA, December 2024).

Looking ahead to 2025, travel is expected to continue growing, although at a moderate pace. The U.S. can be considered a relatively closed economy, which may diminish global trade volumes but we do not anticipate a collapse. According to the U.S. Bureau of Transportation Statistics, in the largest import markets, less than half of the total trade is international; foreign trade accounts for only 15% of all freight tonnage in the U.S. A broader shift toward protectionism globally, however, can result in increased transportation and project development costs.

Figure 10: International passenger volumes in 2024 (% Y-o-Y increase)

Political uncertainty related to the U.S. administration policies and other recent elections globally will continue to cause market turbulence in the near-term. Protectionism and trade frictions will lead to disruption and reconfiguration of supply chains. Megatrends, such as the rapid pace of digitalization, faster adoption of AI and the related energy demand coming from a more diverse energy mix, are unlikely to be derailed.⁴