The word "infrastructure" still conjures images of highways and power plants for most investors. That mental model, according to Ares Management, is roughly a decade out of date.
In a newly published guide, Ares Partner and Global Head of Wealth Solutions Raj Dhanda frames the stakes plainly: "At Ares, we believe private infrastructure is central to building the next generation of global economic foundations — from renewable power and grid updates to digital networks and modern transportation. We believe the asset class can enhance portfolio resilience while providing access to essential, long-duration growth themes."
That framing — essential services meeting long-duration growth — is both the thesis and the architecture of the report.
What Infrastructure Is (And What It Has Become)
Infrastructure generally refers to long-lived physical assets that provide an essential service to society. The assets often have predictable cash flow profiles through long-term contracts or via monopolistic positioning — government-granted protection from competition.
The asset class historically spanned utilities, transportation, and energy. Today it encompasses data centers, fiber, cell towers, battery storage, EV charging, and LNG export facilities. The composition of infrastructure has been changing in recent years. Historically focused on traditional forms of energy and transportation assets, today infrastructure is more technologically advanced and increasingly driven by private markets capital, with the fastest-growing sectors tied to the buildout of the New Economy.
Private infrastructure deal volume has grown at a 26% CAGR over the past 15 years, reaching $413 billion in 2024. An estimated $106 trillion in global infrastructure spending will be required through 2035, and it has increasingly fallen to the private sector to build out future projects.
The New Economy Demand Shock
Chapter 2 of the report delivers the most striking material — a data-driven account of how modern life has structurally transformed the demand for infrastructure.
One AI search takes roughly 10x the processing power of a typical Google search. Generating an image through AI consumes roughly 50x the processing power, while generating videos through AI can take 10,000x or more.
The consequence: over the next five years, global data usage is expected to increase by approximately 3x compared to today, with hundreds of billions of dollars in data center developments required in that timeframe. The projected growth in data demand in 2030 alone is roughly equal to total demand across all of 2021.
Sam Altman's proposed five-gigawatt data center complexes — five or more across the U.S. — illustrate the scale. The largest data center currently operating in the United States is only about one-fifth this size. A data center of that scale has never been built.
Power is the binding constraint. After stagnating for two decades, the demand for power is suddenly taking off. In less than five years, U.S. data centers alone are expected to consume more electricity than all but six entire countries. Meeting 2030 demand will require an estimated $2 trillion in investment in new generating capacity. The report argues for an "all of the above" approach — solar, wind, natural gas, nuclear, and grid-enhancing technologies — because renewables alone cannot deliver 500 gigawatts of consistent power within five years.
Not All Infrastructure Is the Same
The report's third chapter makes an important distinction that advisors often miss: infrastructure is a risk spectrum, not a single category.
The phase of an infrastructure asset's life often coincides with the risk and return potential of the asset. Development-phase assets (3–5 years, higher risk) give way to construction (1–2 years, lower risk), and finally to the operational phase — a 30–40 year useful life where the asset is stabilized and has a long-term, fixed-price contract with a creditworthy counterparty, generating steady recurring cash flow.
This translates to an investable spectrum running from Core/Core+ (income-driven, below public equity returns, lowest volatility) through Value-Add and Opportunistic (appreciation-driven, private equity-like returns). Core and Core+ infrastructure typically yield the most within infrastructure equity, with 50% or more of returns generally coming in the form of income.
Infrastructure debt adds another dimension. Private infrastructure debt has historically provided a lower risk of default. The nature of private infrastructure's long-term contracted cash flows and essential services has historically resulted in lower-than-average cumulative defaults relative to corporate infrastructure and project finance assets, as well as favorable recovery rates.
Portfolio Construction: The Numbers That Matter
Over the past 20 years, private infrastructure has delivered a approximately 9% annualized return, outpacing global equities and its listed counterparts, with the historical consistency of public equity-like returns with closer to bond-like volatility.
Against publicly traded infrastructure, the comparison is striking. Private infrastructure has outpaced publicly traded infrastructure with less volatility over time — 3.1x more efficient on a risk-adjusted basis, as measured by Sharpe ratio. A $100,000 investment in private infrastructure in 2004 grew to $552,600 by 2024 versus $411,300 for the public equivalent.
Correlation data reinforces the diversification case: private infrastructure shows 0.58 correlation to public equity, 0.47 to high yield, 0.49 to public REITs — and 0.00 to aggregate bonds.
Not only has private infrastructure historically been somewhat sheltered from public market downturns, but it has also acted as a hedge against inflation and GDP contraction. Society still needs utilities and power in times of GDP contraction and public market stress.
For 60/40 portfolios specifically, the report models three reallocation scenarios with a 20% private infrastructure sleeve: funded from equities (volatility –230bps, Sharpe ~30% better); funded from fixed income (return +130bps); or split equally (return +80bps, volatility –80bps, Sharpe ~23% better).
Key Takeaways for Advisors
1. The funding gap is real and durable. Government budgets retrenched following the Global Financial Crisis, leaving less funding available to support a growing demand for infrastructure projects. Private capital is not filling a temporary void — it has structurally replaced government as the primary builder.
2. The New Economy is an infrastructure story. AI, electrification, 5G, and e-commerce are not abstractions — they are physical demand signals requiring fiber, towers, data centers, power plants, and transmission lines. Advisors who understand this connection can position infrastructure as a thematic allocation, not just a defensive one.
3. Match the strategy to the goal. Core/Core+ suits income-seeking or volatility-reduction mandates and can be funded from either equities or fixed income. Value-Add and Opportunistic suit return-enhancement mandates and belong alongside public equity allocations.
4. Diversification is achieved earlier than expected. Diversification within infrastructure makes the largest impact for the first approximately 30 holdings and two geographies — suggesting one to two funds may be sufficient for fund diversification in certain cases.
5. Institutional validation is strong. Institutional LPs continue to increase their target allocations to private infrastructure, with the average allocation reaching 6%, and 98% of all institutions plan to increase or hold steady their infrastructure allocations.
The road to the New Economy runs through private infrastructure. The question for advisors is no longer whether to consider it — but how to size and fund it.
Footnote:
Dhanda, Raj, et al. A Comprehensive Guide to Private Infrastructure: Essential Assets for an Evolving Economy. Ares Management Corporation, 2026, REF: 5251309.
