Opportunities for Infrastructure Debt Investing in 2025
Growing Opportunity for Infrastructure Debt Investment
As economies evolve and industries transition toward more digital and sustainable solutions, the need for infrastructure investment is more critical than ever. Infrastructure is crucial for modern society and technological development, including expanding power grids and increasing data center compute capacity. Private investment provides an essential tool to support these critical infrastructure projects.
The Digital Infrastructure Boom
What is driving increased infrastructure investment? The explosion of digital infrastructure due to the rise of AI, cloud computing, 5G networks, and “smart” internet connected devices (everything from household appliances to heavy machinery – aka “the internet of things” or “IoT”) requires unprecedented investment in data centers, fiber-optic networks, and energy systems.
The scale of this transformation is remarkable. Large tech firms—often called “hyperscalers” for their ability to rapidly scale their digital infrastructure—invest hundreds of billions of dollars to build next-generation data centers and the supporting infrastructure. Hundreds of data centers, which demand significant amounts of electricity, are being built across the US and globally. For example, a single one-gigawatt data center can consume as much power as 1.3 million homes or approximately half the power produced by the Hoover Dam1. This places significant pressure on power grids, which will likely lead to these data centers seeking behind-the-meter solutions where they have on-site generation rather than relying on the public grid. This presents further investment opportunities in distributed energy, renewable energy, and battery storage.
For a deeper look at how the rapid expansion of data centers drives power demand in the US, explore this recent analysis from Reuters.
Bridging the Infrastructure Funding Gap
The demand for infrastructure investment far exceeds available capital, and the expectation of increasing long-term demand for power due to data center growth and increased electrification is just one example as to why. Estimates suggest the world needs $200 trillion in infrastructure investment over the next 30 years, yet private infrastructure debt funds have raised just $200 billion2 in the last decade. This presents an opportunity for private investments to bridge the gap and help finance these critical infrastructure projects, particularly transportation, renewable energy, and utilities. More public-private partnerships (PPPs) will help ensure that essential infrastructure projects receive the needed private funding.
For a deeper look at how private credit is growing in addressing the infrastructure funding gap, explore this recent report from S&P Global.
Infrastructure Debt in a Changing Economy
Infrastructure debt continues to stand out as an attractive investment option, particularly compared to mainstream investments like public equities which historically have had significantly higher volatility. Infrastructure assets provide essential services to people and businesses, and demand for their services tend to remain steady even in recessionary environments. Additionally, infrastructure debt provides the following benefits:
- Diversification: Infrastructure debt has historically had low correlations to public equity and debt markets.
- Inflation Protection: Many infrastructure loans are floating rate, which tend to provide higher yields in inflationary environments since inflation typically leads to rising interest rates.
Looking Ahead: The Future of Infrastructure Investing
As we move deeper into 2025, we believe several significant themes will shape the infrastructure debt market:
- Electrification and Energy Transition: Data centers, increased use of electric vehicles (EVs), and industrial electrification are expected to drive up power consumption. To keep up, investments in expanding the power grid and energy storage solutions will be essential.
- Building Resilient and Sustainable Infrastructure: Evolving regulations require more adaptive and sustainable infrastructure, meaning a greater focus on renewable energy, efficient water management, and modernized transportation infrastructure is needed to support long-term environmental and economic resilience.
- Expanding the Role of Private Capital in Infrastructure: As governments face more budget constraints, institutional and private capital will continue to play a significant, and potentially growing, role in funding infrastructure projects.
For more information, the International Energy Agency (IEA) provides an in-depth analysis of global energy needs.
Final Thoughts
Infrastructure debt presents a compelling opportunity for investors looking to generate consistent income while historically hedging against market volatility. As the demand for digital, renewable, and core infrastructure grows, we believe this asset class is well suited to be a cornerstone of investment portfolios.
At Versus Capital, we remain committed to identifying and investing in high-quality, essential infrastructure assets we believe should deliver attractive risk-adjusted returns—in both stable and uncertain economic environments. Our expertise in the infrastructure debt market, coupled with our rigorous investment process, positions us as a trusted partner for investors seeking to capitalize on the opportunities in this sector.
We invite you to schedule a call to learn more about the Versus Capital Infrastructure Income Fund (VCRDX) and how it can fit into your clients’ portfolios.
1. U.S. Department of Energy, How Much Power is 1 Gigawatt?, August 2024.
2. Brookfield, Capturing the Benefits of Infrastructure Debt, July 2024.
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