315. The $106 trillion infrastructure opportunity: Private market outlook

0:01Alastair Green: Sean Brown, We've taken a very broad-based view of what infrastructure is. For us, it's all the buildings, all the assets that support every industry in the global economy and broader society. And when you add that all up, you get to a really big number that's highly correlated with global GDP. The number we're looking at,$106 trillion, that's actually double what it was the last 15 years. What's interesting is where it's happening and how it's happening is going to be different. For McKinsey & Company, I'm Sean Brown, and welcome to Inside the Strategy Room. Infrastructure is having a moment.

0:34Alastair Green: And as you've just heard Adrian Kwok confirm, our 2026 Global Private Markets Report shows that more than$100 trillion in investments is needed to meet global infrastructure requirements through to 2040 alone. That's a really big number, and one that likely can't be raised by the public sector alone. and private capital is helping answer that call. With fundraising for infrastructure hitting an all-time high in 2025 and LP preferences suggesting that this trend will continue. Adrian and his colleague Alistair Green join us today to discuss how the expanding needs of infrastructure are uncovering new opportunities and what moves private investors are making to capture them.

1:19Alastair Green: Al Green is a senior partner in our Washington DC office and global leader of our Infrastructure Special Initiative, as well as a senior leader in our private equity and principal investors practice. And Adrian Kwok is a partner in our New York office and serves leading infrastructure and private equity investors. Al, Adrian, welcome to the podcast. Sean, glad to be here. Thank you. It's great to be here, Sean. All right, so let's set the scene. One of the compelling findings from our annual global private markets report, which you were both involved in, was this estimated$106 trillion dollar investment that's going to be needed in global infrastructure over just the next 15 years.

1:56Alastair Green: So maybe, Al, you could start us off with some of the key themes that came out of the infrastructure chapter of that report and how private capital fits into this story.

2:06Adrian Kwok: Yeah, I think a couple of things really jumped out for me and they caught me by surprise in a positive way. One is that, yet again, the definition of infrastructure has expanded. And so we've seen a lot of infrastructure investors saying, hey, agriculture, that really has infra-like characteristics and we'll spend a lot of time there and deploy dollars, as well as aerospace and defense being a core infrastructure category with slightly different flavors in the United States and Europe, but nonetheless a place where capital is needed and many of the leading infra-GPs are spending time. I think what's also interesting is it's not so much that we've added just new categories, but a lot of the actions happening at the intersections of those categories.

2:44Adrian Kwok: So whether it's smart parking garages or bridge power for data centers or intersections of some of the more traditional categories, we're just seeing a lot of interesting things happening there. And the last point is on the public sector side of the house, a really renewed appetite in both Europe and in the Americas to say, hey, private capital has a role to play. We don't know exactly how we want to harness it, but we know we need to start harnessing it because we simply cannot get the things we need to build built without the help of our private investor friends.

3:14Alastair Green: Adrian, let's talk a little bit more about that$106 trillion opportunity. It is a very large number. And where is that money going to come from? And where is it going to go in terms of infrastructure subsectors and geographies? Yeah, happy to, Sean. And this came out of research that we did over the course of last year, it's a massive number. We knew that it would get a lot of attention. We've taken a very broad based view of what infrastructure is. I think if you ask different investors, they will all come with a different definition for what it means for them. For us, it's all the buildings, all the assets that support every industry in the global economy and broader society, right?

3:51Alastair Green: And we take that definition, it goes beyond just traditional transport infrastructure like bridges, airports, railways, what have you, and is starting to include things like data centers and fiber networks and satellites. And when you add that all up, you get to a really big number that's highly correlated with global GDP. The number we're looking at 106 trillion, that's actually double what it was the last 15 years. And in some ways, this is like an immovable, you know, force that is coming towards us. For global GDP to be sustained at the rate that we expect it to, this investment will happen, right?

4:28Alastair Green: What's interesting to your question is where it's happening and how it's happening is going to be different. You know, when I talk to our clients, like one of the things that's most surprising, but then becomes quite intuitive once you think about it is the majority is actually going to be in Asia, right? Because infrastructure investment supports broader GDP growth, it's basically correlated with where the global economy is growing. And 70 trillion to that 106 is going to be in Asia. The other geographic lens I bring to this is depending on the geography, there's going to be a mix of replacing aging infrastructure.

5:04Alastair Green: We see a lot of that in the US right now. Some studies have found that if we don't replace and modernize aging infrastructure in the US, it could cost the US economy$10 trillion by 2039. Massive number, right? Similar trends in Europe. But then in other parts of the world, it's about investing in just the basic level of infrastructure to support the economy continuing to develop and grow, right? So in terms of where the fastest growing sectors are, the single fastest one is digital, data centers, all of the supporting infrastructure that goes into that, but energy as well, right? I think you talk to our energy colleagues, energy investment in the U.S., relatively flat and stagnant for the last couple of decades, starting to accelerate.

5:52Alastair Green: Heavily driven by the AI boom, but other factors as well. And what role is urbanization playing? You mentioned the growth in GDP in Asia, for example, where we're seeing a really notable urbanization trend. So why does it make sense for more private capital to flow into that versus, say, government funding, which is what you might have expected in the past? Yeah, 100 percent, particularly when you look at energy and transport infrastructure beyond just Asia. Right. There's tons of that investment going into Africa. This is a little bit of the drumbeat I was referring to. Right. This this infrastructure is coming, whether we like it or not.

6:29Alastair Green: What is interesting to talk about is the role of private investment. it, right? Because all of what I've been describing so far, the money will come from somewhere. Traditionally, it's come from governments. Private capital has an increasingly important role to play in meeting the infrastructure gap that we're seeing. A lot of governments are constrained from a fiscal standpoint right now. A lot of that money is flowing in from the private sector with sources of capital that love infrastructure investment, right? I think about the big pension funds, I think about insurers, they're looking for places to put their money that have a risk return profile.

7:04Alastair Green: That's, you know, very well matched by a lot of infrastructure investments. You know, another thing I think about is, you know, the private sector has a lot to add in terms of improving operational efficiency and infrastructure as well. Some of the large investors, they own multiple airports, right? And if you own multiple assets of the same type, you can bring a lot of best practices, efficiencies. We'll talk about AI probably at some point in this conversation. I'm shocked it's taken us this long to even get to this topic. It's a record, Adrian. Don't worry. We have some questions there. But it's a really exciting time, I guess, is maybe the last thing I'll say, particularly on the private side.

7:41Alastair Green: And so, Al, what's your perspective here? I imagine there are also some constraints that might correspond with such a big opportunity.

7:49Adrian Kwok: No, I think that's right. I mean, one trend that goes along with urbanization, which I think we'd be remiss if we didn't discuss was the huge amount of pressure on labor for certain trades and what that does to the infrastructure build. The rate of construction of things like data centers, the power needed to supply them, and some of these things that we are building in far greater quantities than ever before, those are done, of course, with engineering firms and EPC firms. But if you unpack that and go underneath for a number of the trades, of course, if any of us have tried to get a plumber recently, you know that all too well, but mechanical, electrical, concrete rolls, even transport of kind of flatbed trucks over the road trucking.

8:27Adrian Kwok: There are certain categories of labor that are becoming incredibly scarce. And while this number is exciting to see us building the infrastructure of tomorrow to help us kind of meet our GDP growth expectations, the pinch is really quite acute in certain trades and in certain subsectors. And that has actually led to, you know, I think some forced innovation on the part of the top investors in their portfolio companies. I think that goes hand in hand with some of the trends about the population shift and urbanization.

8:55Alastair Green: And Al, are you seeing AI as something that will enable more efficiency and profitability in infrastructure? You mentioned that labor crunch. And, you know, if we think about, say, self-driving trucks or other technology advancements that one might associate with infrastructure, can you speak to some of the trends you're seeing in AI tools that are solving some of these challenges?

9:17Adrian Kwok: Yeah, I'm seeing a lot of things. And you alluded to this, but of course, there's the fact that AI as a driver of unprecedented demand for data centers and therefore energy is kind of both a root driver of a lot of the expansion we're seeing, particularly in North America. But then the question you asked, definitely we are seeing some things that are actually quite inspiring in terms of the approaches they could take. So in response to the labor problem, if we just take things like generative scheduling and generative design, which are simply ways of restructuring a complex project schedule for anything over$200 million or so using AI-based tools, but in ways that can dramatically improve the efficiency of your labor and all your various subcontractors.

10:01Adrian Kwok: I mean, Adrian and I, even with sophisticated clients, regularly see 10, 15, 20, even 25 % cost and schedule compression for things like renewables and data centers that these same portfolio companies have built before. So that's not just moving up the learning curve. That's actually AI when deployed right can drive a material step change in IRR and efficiency for those projects. And while we don't see adoption anywhere approaching close to half the market, I think that makes me very hopeful that once deployed, these things can actually move the needle significantly.

10:35Alastair Green: Thanks, Alan. Adrian, what's your take? How are you seeing AI showing up in infrastructure? infrastructure? It's interesting that AI touches infrastructure in a multitude of different ways, right? There's what Al's describing, which is using AI tools for value creation, operational efficiency, which I've noticed a step change, honestly, in the last 12 to 18 months, primarily because the data that we were dealing with before in infrastructure assets was highly unstructured, often lived in a lot of different places. The tools now to kind of consolidate that data and draw out insights is just completely different from what we had before.

11:12Alastair Green: And you're noticing infrastructure, which, you know, along with real estate, I think we'd historically say it was a little bit behind the curve versus call it, you know, consumer or media catching up. Right. So that's one thing I think. To Al's point, you feel the impact of the AI boom, not just in data centers, but across a lot of different infrastructure verticals. Right. Fiber connectivity, obvious one. power is one that I'm sure we'll talk more about over the course of today. Even things like water and, you know, there's a variety of different ripple effects for the amount of, you know, no pun intended, the energy that's going into data centers.

11:52Alastair Green: You feel it across infrastructure. And the final one, interestingly, is actually the way in which our private capital clients evaluate infrastructure investments in the investing process. Right. But, you know, IC memos, diligence, it's all being impacted by AI as well. And so you can't really look in any direction and not see what AI is doing to infrastructure investment. Indeed, not surprising at all. So let's shift now to the fundraising landscape. Are you seeing a lot of new funds emerging to capitalize on this infrastructure opportunity? Or is it more that existing funds are just doubling down and expanding their remit?

12:32Alastair Green: Yeah, we've looked at this over the years. And, and Al, you and I like have talked about when is the fundraising going to catch up to what we're hearing in our conversations, and I can say it caught up in 2025. Just to calibrate, we hit almost$200 billion in fundraising into infrastructure-designated closed-end funds in the last calendar year. From an overall AUM standpoint, the amount of private capital and infrastructure is closing in on$2 trillion. That's up basically 3 or 4x over the last 10 years. And fundraising is up across basically every region, heavily in North America. But this is something, I think, to what we were talking about before that we don't see slowing down.

13:18Alastair Green: There's a ton of capital that's flowing into infrastructure. I think what's interesting is we can break that data down further by the actual strategies that GPs are taking. You know, back in the day, if you go back to 2011, it was very heavily in what we would describe as core infrastructure, regulated cash flows, utilities, toll roads, what have you. The trends are pretty lumpy kind of year to year. But what we've noticed over the last couple of years is increasing interest in riskier infrastructure investments, right? What we would call as core plus or value added or opportunistic, often not existing infrastructure with those regulated cash flows, but often brownfield or greenfield new investments, or investments in areas that are a little bit newer and not what you can consider traditional infrastructure.

14:13Alastair Green: And I see that a little bit as an indication that the sector is maturing. It's no longer this kind of afterthought where only certain types of capital kind of flow in, only certain types of investors are interested. But it's becoming more and more core to a diversified investment strategy, which means that you're not just interested in the very stable, you know, run of the mill infrastructure investment, but you're looking more broadly. That makes a lot of sense. And we talked about the fact that historically, a lot of infrastructure is government funded. And Adrian, you mentioned that we are seeing some government budgets somewhat constrained.

14:50Alastair Green: So if you're saying the private capital is flowing into this, because they can see the opportunity, why aren't governments also seeing that the return is there? Or is there a problem explaining and justifying this to constituents now? I think the private sector, and I'm not going to say anything controversial here, just moves faster. And I think for decades, infrastructure was something stable. We knew what the needs were going to be for the next 10 to 15 years. You could kind of plan ahead. And when you need to replace the road, you kind of factor that into your budget. I think as an And Al talked about this as as infrastructure has gotten more complex and what it takes to run society.

15:34Alastair Green: Right. Is is involves a lot more today than it did 100 years ago. You're seeing the nimbleness of private capital meet that need for the reasons I mentioned before. But also just, you know, there's a lot of interest in in faster growing parts of the infrastructure world that match what investors are looking for. You know, data center is like is it's not growing a GDP. It's growing much faster. Right. So you're attracting capital now also that maybe previously wasn't as interested in in buying into when we were looking at only 500 billion in AUM and private infrastructure that maybe only appealed to a subsegment of the investor base.

16:13Alastair Green: there's just a lot more out there for everyone now.

16:16Adrian Kwok: Yeah, I think there's also a point that in some cases, even relatively small companies can have more scale than governments in certain topics. So I'll give you an example. If you think about all those aging pipes that are constantly breaking of wastewater and fresh pipes in the US, those are being handled by probably one person who probably feels pretty lonely inside an individual municipality. If we look at companies that do like trenchless pipe repair, that's a fundamentally better technology. Again, a sort of step change in efficiency for certain types of repairs. Those companies are not necessarily massive, but they do have the benefit of working across hundreds or thousands of geographies versus a municipality might only know one way to do it.

16:53Adrian Kwok: And so in some ways, there's a bit of technology transfer from, yes, they're nimbler when backed by investors, but also companies that are really specializing in bringing technology to the public sector in ways that justifies their role.

17:06Alastair Green: And are you also seeing governments more actively take a role in bringing that private investment in and encouraging public-private partnerships or P3s, or even perhaps stepping back from making the infrastructure investment at all, knowing that private capital will fill the gap?

17:24Adrian Kwok: So my personal view is if we go back in time, right, there's some places like certainly Australia, I think Australians would probably say, you know, we kind of invented this market with the Aussie supers, you know, funding a lot of, with private dollars, public infrastructure, Ontario, France. There's many places this has been, P3s have been done actually very successfully and in kind of very holistic regimes. I think if I look at both sides of the Atlantic right now, certainly the current US federal administration talks a lot about, you know, bring your own money. We want to see investment by the private sector to support infrastructure needs associated with the federal government.

18:01Adrian Kwok: In Europe, it's been a slightly different flavor, which is we know we need to ramp up to 5 % of GDP. Boy, that's going to be hard. and the creation of dual use infrastructure. So military, commercial purpose facilities, like say a port or a dock, actually having some subsidies. I will say those are both helpful kind of general direction from the national governments. But Adrian and I have been kind of tracking this and we certainly haven't seen the volume of real P3s kind of matching the rhetoric yet. So I think the door is open and philosophically, it feels like the right direction, but actually making this happen, I think we have a ways to go.

18:37Alastair Green: Yeah, I think there's a lot of creativity out there. I agree that the door is wide open. I think it also goes beyond just private capital and government, also corporate's savvy around where private money can help them accelerate. I think about the AT &T gigapower deal from a couple of years ago, they needed to build out a lot of fiber to reach millions of American homes. And, you know, that capital can come from the private, from, from, from private equity, right. And even like chemicals manufacturing, like a lot of these, a lot of these things that the large company, large corporates have basically held in house as almost utilities for their, you know, for their core operations, they're realizing may actually be better owned, you know, outside of their organization in a spin out or carve out, right.

19:26Alastair Green: And you're seeing that kind of activity as well, and particularly with some of the large megafunds that have a lot of capital to deploy, they're able to kind of invest in a project like that, right? So I would say it's almost a triangle between government, broader corporates, and then private capital. And where is the right source of capital to fund the needs that, you know, as we've talked about, are tremendous. Indeed. So Adrian, would you say that this does point to the big funds then getting bigger versus new funds being created to pursue the opportunity? I think we, so we looked at this and I would say it's still very top heavy.

20:02Alastair Green: So if you look at total capital that's been raised over the last 10 years or so, about half of it, honestly, is still in the top 20 asset managers. And not to say that there aren't, you know, smaller infrastructure funds being raised and particularly with the amount of capital that we need, a lot of opportunity out there. And, you know, also investors that traditionally have operated in spaces outside of infrastructure, like real estate, setting up an infrastructure arm and realizing that's something because their LPs are asking them for it. We see that as well. What's interesting, though, is the dynamics are quite different between the really, really big guys and everyone else.

20:41Alastair Green: Just as one anecdote, I was I was talking to, you know, one of the top in for investors a couple of weeks ago, and we were talking about waste opportunities. and I asked him, you know, what opportunities do you look at? Are there specific sectors within waste and water that are interesting? And he said, actually, I look at everything that clears the bar for what we're looking. We're looking to write a$500 million equity check or more. There's not a lot out there. So we just look at everything, right? And that's very different from a smaller fund who may only have$100 and$150 million total capital deployed.

21:11Alastair Green: The opportunities they're looking for are probably a little bit more niche than what that other person was describing.

21:16Adrian Kwok: I'd also add, Sean, that I think many folks out there see, look, you kind of have to be in infrastructure or it's the place to be. And as Adrian said, it's far more concentrated at the top in terms of fundraising than we'd see in, say, the buyout side in private equity. It feels like an asset class that all the largest GPs feel like they need to be part of. And I will say that Adrian and I, along with some of our colleagues who serve founders on kind of top of the house strategy for investors, the, I don't have an infra fund, but can I raise one is a topic that we probably have a couple of conversations a week.

21:49Adrian Kwok: So for those that aren't kind of in the game already, it feels like one where they want to be.

21:54Alastair Green: Yeah. Or it's the, I have a bunch of assets, but they're kind of infraservices. Can I market this as an infra fund is one that has also come up or like, I have a couple of real estate assets, senior living, warehousing, data centers. Can I reposition that as infrastructure? Interesting. So there's plenty of interest. Maybe we could talk a little more specifically about where the demand is coming from and does it look like it will hold up? It's coming from the LPs. We've looked at this over the last several years and we ask across different asset types, buyout, growth equity, venture capital, real estate, infrastructure, private credit.

22:35Alastair Green: And infrastructure consistently comes out as the place that people want to put more of their money, right? It is number one of those six asset classes that I mentioned, but more than half of respondents in our 2026 survey said that they intend to increase their allocation to infrastructure, right? And that number has consistently been top of the class. And I think interestingly, real estate over the last couple of years has maybe underperformed LP expectations. And we've seen a little bit of a rebalancing. You can read this in the private markets report mentioned in our real estate chapter as well.

23:16Alastair Green: When you think about a real assets portfolio, there's a bit of a rebalancing happening, I would say, between real estate and infrastructure and striking more of a balance there. I don't know, Al, if you'd add anything just on infrastructure continuing to be that place that people want to put their money.

23:30Adrian Kwok: Well, I spent a week in Berlin at the Infrastructure Investor Global summit and spoke with a number of LPs and of course, a bunch of GPs. And my question was, hey, if we've had a record fundraising year for infrastructure funds at a time when most other forms of private capital were not keeping pace, and for, as Adrian said, in 23 and 26, infrastructure was the private asset class they wanted more of, have we kind of reached the top? And the GPs, of course, thought no, but even the LPs I caught said, no, we actually think that infrastructure continues to deliver. And in some ways we think the fundamentals are better, but it was not a, okay, we've plunked down some capital and now we expect to kind of draw back.

24:11Adrian Kwok: I think it was, if anything, kind of heightened expectations for what infrastructure is and what infrastructure can do in the context of an LP's overall portfolio. And in fact, there's some, what's called smaller LPs who may not have had a dedicated infrastructure allocation and team before. there's at least a couple I spoke with who are forming one or have formed one in the past 12 months.

24:34Alastair Green: Yeah. The other thing we found in our research is this trend is pretty consistent across the different LP types, whether they be private wealth or pensions or family office or insurers. It's not like there's one particular type of LP that's really looking to reallocate into infrastructure. We see the trend pretty consistently, either staying the same or increasing over time. Very, very few LPs across all those different categories are looking to decrease their exposure to infrastructure. So are you seeing any specific focuses in these funds? What's the focus to share right now? I assume that data centers, for example, are pretty high on many priority lists, but the associated electric grids are probably becoming more and more important as these data centers also rise.

25:19Alastair Green: So what are some of the big areas that, especially as the GPs are raising their funds, they're pitching to the LPs in terms of where the money is going to go. Maybe you could share your top three. Yeah. I mean, I'll give my three, and then Al, curious to hear if yours are the same. Number one, for sure, data centers, given the AI boom. Two, I would say, is power and electrification. And included in that, I would say, in particular, the intersections between power and a number of other infrastructures. So data centers in power, for sure. We've seen funds raised specifically at that intersection, but also electrification of transport is another one that I'm having a lot of conversations around that as a theme feels like an inevitability.

26:07Alastair Green: And there's a lot of capital that's running in to chase that in terms of trucks on the road, eventually I'll be self-driving and I'll be electric, right? It's just a thing that people expect. And the third one interesting is waste in water. You think of it as not the most interesting thing to think about, but people recognize people are going to have to throw out their trash somewhere. Those are very attractive investments from a risk return profile. Interesting. Does that also ring true for you, Al? Are there any other spaces you'd like to call out?

26:35Adrian Kwok: Well, I think Adrian called the big buckets 100 % correct, but nothing to add there. I will say, though that most infrastructure funds have generally the same categories they invest. And so it is digital communications. It is energy, transport, water and waste. Those are typically the big ones. But I think within each of those, there are a lot of new things that have popped up beyond just the data centers and the associated sort of knock-on effects. So smart parking garages that are truly run by IoT and done in a different way, things where you are generating like microgrids for industrial or government applications, as well as things like district energy.

27:15Adrian Kwok: So combining a bit of the student housing, sort of real estate and social angle with the onsite energy production. I think all of those things probably existed technically 10 years ago. But now they end up forming a larger part of GP's time and the dollars they put to work. So it's almost like the pillars themselves are kind of changing, even if they have the same, you know, same names as five years ago. Yeah.

27:38Alastair Green: And the surrounding ecosystem becomes important too, right? I like when I think about just to stay on data centers for a second, it's not just the physical building of the data center, but it's the equipment, the racks, the power that goes into it, the cooling. And you could see the trend of that demand. We call it picks and shovels for data centers. So regardless of what you see in the froth on the top of which hyperscaler model is going to lead. I think the infrastructure layer in the AI boom has very different dynamics where you're going to need the building, you're going to need the cooling, you're going to need the power going into it.

28:14Alastair Green: And those that are operating in that space from an equipment standpoint, from a services standpoint, from an infrastructure technology standpoint, have seen tremendous growth. And that's one of the reasons why there's been so much private capital interest in that sector in particular. And so what about the environmental aspects here? With data centers, for example, there are obvious concerns over energy and water consumption. So how are private investors addressing those issues, whether at public sector partnership level, state or local government, or even community level?

28:48Adrian Kwok: It certainly won't try to speak for how the private sector works, the public sector in kind of every geography. But if we take North America, right, I think it's well covered in the popular press that there's kind of pushback, right, at the state or the local level to data centers on sometimes on the basis of water concerns, on the basis of power, sometimes just for other reasons entirely. Folks who are maybe, you know, opposed to having it in their backyard, which is the oldest problem of infrastructure in the entire world. I do think, though, that particularly in places where you do have multiple layers of democracy and really both local pushback can be as challenging as a federal NEPA review.

29:27Adrian Kwok: I think it's certainly in the minds of any developer person who's putting these down that working and making this a win-win for other stakeholders, including the local community. If we don't do that, this is not going to work. And so that's kind of, you know, the people who are actually putting this stuff in the ground, I think, recognize that's pretty essential. I will say that on the environmental side, I probably hear this brought up more as an opportunity that, hey, if we're going to do some sort of cleanup or processing of oily water or waste from another form of infrastructure, or even taking away things like C &D waste or anything other than kind of landfill type waste, those are places where both communities and corporates are willing to spend real money to get the answer right.

30:09Adrian Kwok: And so you probably hear the environmental thing come up more as a real opportunity.

30:13Alastair Green: So let's talk a little bit more about that upside and how environmental and sustainability considerations are playing out. For example, I'd imagine if you have a big wind farm that can feed a data center, that would be an ideal scenario. Yeah, there are a couple of themes, I think, back to the point of previous on intersections between infraverticals that are relevant when it comes to sustainability. One is electrification of transport, which I mentioned. I think another theme is waste to X, basically waste to different forms of energy, you know, taking organic waste and turning it into rather than just, you know, throwing it away, turning it into something that's that's useful.

30:51Alastair Green: Certainly renewables, wind farms, solar, battery storage, even for the very largest infrastructure investors, it's very common for them to have a sleeve that is focused on not just infrastructure investing, but kind of sustainability and environment focused infrastructure investing. decarbonization across all buildings is another big theme that we're seeing. A lot of these buildings are really, really old. They're not very environmentally friendly from an energy consumption or otherwise. We talked about earlier, as this infrastructure needs to get refreshed in Europe and in the US, using sustainable building materials, installing clean energy, that is something that is certainly a thing that we're seeing kind of try to move in parallel.

31:34Alastair Green: right? And that's ideally the direction we want to go. And I'd imagine that in emerging markets, for example, it might even be a bigger opportunity in the sense that much of this investment could be greenfield.

31:46Adrian Kwok: You're right. If you build a new building from scratch and you're kind of leapfrogging, there's a way to do that. And I think we know how to build, say, a model office building or model home. Retrofitting things that you often don't even know which HVAC components are inside your building and you have thousands of different buildings, that is a tricky problem. I will say, though, that this is where AI can be a little bit fun. So we've served a couple of large REITs as well as public sector entities with sprawling portfolios of buildings, hundreds or thousands. And they truly did not know what was in their building, which is actually quite typical.

32:18Adrian Kwok: but we had satellite images from space that have infrared feeds of all those buildings. And you can see the ones that are venting heat in the summer. And then that allows you to say, okay, let's send the engineers to those 10 and fix them. And then actually you can get 80 % of the benefit in a very short amount of time. So even on this problem, it feels intractable. There's Aon L.

32:38Alastair Green: That is a really interesting example. And so now to change gears, we know that LPs are increasingly allocating capital to infrastructure investments. But maybe you could now dive a little bit deeper into the top reasons from your survey why LPs are actually upping their infrastructure allocations. Yeah. Yeah. What's interesting is because we've run this survey consistently over the last couple years, we're able to see both the number one reasons that LPs want to put more capital into infrastructure, but also how their responses are changing over time. So the top three reasons, no surprise. Number one is diversify the portfolio.

33:16Alastair Green: Number two is returns. And number three is performance. Or number two, sorry, they expect to increase in the rate of returns. And three is pure performance. Those top two actually increased about 11 percentage points over the last two years. And kind of the things that have fallen as a result are increasing their direct investing and then also deepening strategic relationships with GPs. I guess backtracking a little bit what I said before about diversification not being the main reason. It is still number one, right? But you're seeing a number of these other reasons rise to the top of why LPC infrastructure as being attractive, right?

33:54Alastair Green: And we also ask LPs when they're thinking about GPs, what are their top criteria? The top three are performance, quality of the investment team, and value creation strategy, right? And the number of them that rank that of LPs that rank these in the top 5 % or 70%, 55%, 53 % respectively. What I find interesting is value creation strategy, while it's number three, it's been quickly rising over the last couple of years. LPs are increasingly focused on the GPs that are not just buying and holding the asset, but buying the asset, recognizing opportunities to improve the performance, and weaving that into their investment strategy or value case.

34:36Right.

34:37Alastair Green: And we, you know, they're increasingly, especially amongst our large fund fund clients, designated teams internally that have standard playbooks around things like CapEx deployment, around procurement, around predictive maintenance, around commercial levers as well that they're applying. and that becomes a differentiator. And especially as competition for these assets gets more heightened, investors that can credibly underwrite an upside case that involves value creation are winning out also in the bidding wars for a lot of these assets. And so how is this varying by geography? Are we seeing interest in specific sectors across all regions?

35:18Alastair Green: I don't know, Al, if you've seen a big difference. I think value creation is in some ways quite universal.

35:24Adrian Kwok: I think this is probably one of the few truly global trends in that it just fascinated me how much LPs are expecting even better performance from infrastructure in the years to come. And as a result, and while moving up the risk curve and recognizing that, hey, these assets are often of a different type than they would have been done 10 years ago. It's not necessarily something every GP has done 20 times, like a toll road or an airport. And therefore saying, well, if you're going to be doing this successfully, I really expect to see value creation at the GP level. Now, in Berlin, I did have a couple of conversations with LPs about this and I said, how do you know?

36:06Adrian Kwok: And I think right now the answer is, well, do they have an approach to it? Does the GP have an approach to value creation I can see and they have some sort of core team? But very quickly, the proof will be in the pudding and it will be, hey, were you able to take these assets that were maybe tricky and actually make them winners, which is I think where LPs will spend increasing scrutiny in the couple of years ahead.

36:30Alastair Green: And how is this varying by sector within geographies? Are we seeing interest in specific sectors across all regions? For example, data centers, one might think, or digital more broadly, are universally attractive. Yeah. Yeah. I mean, we ask LPs where they're most interested, what kind of the intersection between infrastructure vertical and geography, when you're most interested in investing. And the number one cross section is North America and digital. I think heavily driven by the trends we talked about around fiber and data centers. North America in general, I think, is a place that is probably, it's funny you say, is underinvested right now, given the MLP interest.

37:17Alastair Green: You know, one thing that I find interesting in the survey is LATAM is actually maybe the second most interesting geography, at least according to this survey. Alan, I remember you and I were having a conversation a couple of weeks ago that that kind of jumped out to us as well. And then, you know, across the board, I think energy continues to be a place that is attracting a lot of interest. One interesting analysis that I ran a couple weeks ago was I looked at the difference between where we expect that$106 trillion to go over the next 15 years and where the money is actually going from a private standpoint.

37:50Alastair Green: And what is interesting is even though I think 40 % of that$106 trillion is going to go into transport, and Sean, we talked about in Asia and Africa, you just need a lot of that stuff to help society function in the way that we expect to develop from an economic development standpoint. More of the deals right now are in digital and in energy. If you look at a stack ranking of the top deals that have happened in private capital and infrastructure over the last two years, heavily weighted towards big data center deals, big energy deals. There's actually a little bit less transport than you would expect.

38:28Alastair Green: In 2025, 27 % was kind of in that digital telecom space. A full 49%, almost half, is in energy. And that includes both utilities and renewables and energy storage and the broad swath of what we will find as energy. And only 12 % is in transport. I think that's interesting because of what we were talking about before, which is one of the reasons for that, that transport is still heavily being funded by government. And there just are not the investable deals yet in the market for the really big infrastructure investors to deploy their capital there. Right now, the way you're talking about with people in Berlin, it's not like they're not looking to deploy the capital into transport.

39:13Alastair Green: My hypothesis is actually the investable deal side that needs to catch up. And so for most people, when they think about infrastructure, by definition, it's often local to the human beings benefiting from that infrastructure. So how is digital changing the equation? Data centers, for example, I know there are some that need to be very close by, but many others that can be much further away from population centers. How are you seeing that play out? I think of data centers as to your point, it really depends on the type of data center, right? The massive training data centers, those do not need to be close to metropolitan areas.

39:50Alastair Green: They probably shouldn't be, honestly, if we look at the impact on kind of surrounding temperatures and that sort of thing. Those are better to be put kind of in the middle of nowhere. Edge data centers, for latency reasons, make a lot more sense to have kind of closer to where the inference is happening. I think sovereign AI is another thing that plays into here. In theory, all of these models can be traded wherever. But I think there's increasing emphasis from governments on wanting to have a local presence and recognizing that that's going to be competitive advantage from a geopolitics standpoint, from an economic standpoint.

40:26Alastair Green: point. That's also driving a little bit of what you're referring to, Sean, as this kind of global versus local dynamic when it comes specifically to digital infrastructure. And to just get a little more granular now, I believe your research identified some 100 plus sub verticals within infra. And while we can't discuss all of them today, we are including a link to your report in the show notes. But and maybe Adrian, now you could talk a little bit about how investors are navigating these subsectors more broadly? And are they focusing on any specific subverticals or investing across all of them more generally?

41:02Alastair Green: You know, Al and I at one point took a step back with the other partners that do work in infrastructure and said, literally, what are all the different places we've seen capital flow from an infrastructure standpoint? And it is a remarkable number of discrete investment categories, for lack of a better term, across the seven areas that you highlighted at the beginning, transport, energy, social, digital, waste, agriculture, defense. And from an investment standpoint, it creates this interesting dilemma for any infrastructure investor of, can you truly be a generalist? Can you truly cover all of these different verticals?

41:43Alastair Green: Or do you pick a couple? Or even my recommendation is to pick a couple of themes, right? Digital and power, electrification of transport, waste to X. I think you're seeing more of these strategic decisions around, you know, we can't be, we can't compete for every single opportunity across all of these different areas. There's just way too many of them. Where are the areas that are, you know, the best fit for our capabilities, what our investors are looking for?

42:09Adrian Kwok: Most infra GPs, or even some folks who don't even have a formal infrastructure fund, but are kind of dabbling in it from the private equity side, they do have to make a bit of a call as to, okay, I can't do all 100 bullets. I could probably only do 20, 25 of them well, even within my established sectors. But the question very quickly does go back to what Adrian said before, which is, what's my edge, right? Let's assume there's always a lower cost of capital out there. And so if I think I can compete in a competitive process or even a bilateral process and win, it's because I'm going to be adding something more than just capital.

42:43Adrian Kwok: So there needs to be some sort of value creation angle, greater pattern recognition, willingness to underwrite risk, or ability to do something a little bit different with AI than the asset was trading out before. And so I actually, I think that in the discussions and the work that I ended up doing with InfraGPs on the diligence front of an asset they want to buy, very often half of it is what could we really do with this thing that is more than somebody else? and asking that question in a serious way before signing and setting the final purchase price, which just goes back to, you know, without value creation, not only can you not make the most of the asset, but it's actually hard to prevail as the one who gets to buy the asset in the first place if you're not clear about that.

43:25Alastair Green: That makes sense. And a discussion on private investment and infrastructure wouldn't be complete without talking about returns. So maybe now we can talk a little bit about what the returns trend has been and where you see it going. Yeah, I think of this as a story in three parts. So and we talked about the first part of it and a little bit about the second. But the first part is all about fundraising. Right. And we talked about how that AUM is creeping towards two trillion total. And, you know, that's driven, obviously, by fundraising, which we can that that that will continue. Right. And I expect next year we'll be saying in our in our report over 200 billion in new capital.

44:08Alastair Green: that's flowing in infrastructure funds. That capital only matters if it finds a place to go. And so the second metric that we look at is what we call dry powder, which is the amount of undeployed capital. That amount of undeployed capital, while on an absolute basis, has remained pretty consistent over the last couple of years, because AUM has grown so tremendously, as a percentage of AUM, it's actually been decreasing. So that number was almost 40 percent, actually, about 15 years ago, it's now down to 23%. What that means is that the money that's flowing in infrastructure funds is finding places to be deployed.

44:46Alastair Green: The final piece of this, though, is to your point, Sean, is that money making its way back to investors in the form of returns. That is where the story is a little bit murk here. I think we're in this period where infrastructure, as I said before, I think is maturing as an asset class. It's not quite there yet. I think One metric that we look at is distributions on paid in capital. And we look at this on a five year basis. So, you know, the way to think about this is five years after the capital is invested, how much of it has actually been returned to the investors? That number has decreased over the last couple of years, not significantly, right?

45:24Alastair Green: But it's down to about 13%, which is lower than it has been since around that 2012, 2013 period. Um, and, you know, Al, you should comment on this as well, but to me that, that is a little bit of reflection of, um, you know, there's still opportunity for these assets to, whether it be through value creation or asset selection, um, you know, do more in terms of, um, performing the way that investors expect. expect. But in some ways, I think just given the amount of capital that's flown in and we talked about in terms of looking for places to put that capital, that trend is not something that's particularly shocking to me.

46:06Adrian Kwok: Indeed. Yeah. I think if we go back to that point earlier about LP's expectations from infrastructure are only getting higher, right? They're putting in more money. They want more allocation. They think it's performing great and they expect to see a lot of value creation and strong returns. There are frankly a number of assets that are systematically a lot tougher than the infra GPs thought to begin with. So not to pick on fiber, data centers, renewables, but both on the kind of operating costs and the capex side, because of the labor scarcity and the changing of subsidy regimes, it's a lot tougher.

46:40Adrian Kwok: And so we're seeing those GPs really say, how can I do much more with less?

46:45Alastair Green: Thanks, Al. So we've covered a lot of ground, And I'll just share another reminder that there is a link to the 2026 Global Private Markets Report in the show notes. And we've also included a link to the Infrastructure Moment, another interesting report from you and your colleagues. But to wrap things up, I'd love to ask you both for your perspective on what's ahead. What do you think are the most important takeaways for our listeners for the year ahead and beyond? Adrian? Gosh, it depends on who the audience is, right? I think for our GPs in the audience, they should take away that your LPs are begging for more infrastructure investment as you hear that call.

47:23Alastair Green: For our LPs, infrastructure is maybe a lot more diverse than you previously thought. Maybe you've only thought about it as transport. It's all of the different things we talked about. People that are just here for general interest, infrastructure deserves your attention, right? There's a lot happening in it that is fundamentally going to change the way the society operates and it's going to support all of the megatrends we see globally from an economic and technological standpoint. And that's worthy of our attention. Thanks so much, Adrian. And Al, you get the last word.

47:53Adrian Kwok: All right, which I always love. No, I think it's that the potential for value creation, both that you underwrite upfront and that you can deliver in a portfolio company, is really so much better. We've talked about a couple of step changes like the AI based scheduling stuff, and there's 20 more examples. But I'm amazed every week at some new thing I hear about, which is, you know, dramatically different results in the portfolio company of a leading investor or a small investor. I think, wow, three years ago, that would have been literally impossible or sounded like science fiction. And so I would just encourage a bit of spirit of curiosity on the part of investors and CEOs to say, if this stuff is out there, there are some very impressive examples of where this stuff is taking place.

48:36Adrian Kwok: Why not just try it? But doing that in a humble way where the first time you do a deployment of some AI-based tool, it might not go perfectly. But in the second or third time, you'll start to see those benefits across your whole portfolio.

48:48Alastair Green: This has been a fantastic discussion. And for me, it really emphasized how effective infrastructure benefits us all and the important role that private investment is going to need to play to make sure that that continues to happen. So thank you both so much for joining us today.

49:04Adrian Kwok: Thanks, Sean. Thanks to you and thanks to the audience. We appreciate it.

49:07Alastair Green: And thank you to all of our listeners. We hope you enjoyed the conversation and we welcome your feedback and ideas for future podcasts. Just email us at itsr at mckenzie.com. You can also share your ratings and reviews on any podcast player with many thanks to all who've already done so. We really appreciate the comments and feedback we receive each week and encourage you to please keep it coming. And if you enjoyed this episode and you'd like to subscribe, you can follow our weekly series on any podcast player where you can also access our entire library of more than 300 episodes. Finally, if you'd like to automatically receive our latest publications and insights, we encourage you to visit our private capital practice at McKinsey.com slash PC and our strategy and corporate finance practice at McKinsey.com slash SCF.

49:55Alastair Green: You can also connect with us on LinkedIn, and we've included all of those links for you in the show notes today. Thanks again for listening. We look forward to having you join us again next week inside the Strategy Room.