Some investors have shifted their focus to investing in nuclear power plants.

The enthusiasm for AI investment has not waned, yet some investors have quietly changed their direction and turned to investing in real industries.

Not long ago, an investor friend who used to focus on embodied AI shared with me the news of his new position: he has officially made a transformation and started looking into physical assets such as photovoltaic stations and charging stations in the new energy field.

When asked about the reason behind this significant change, he left a meaningful remark: "Equity may easily vanish into thin air, and only what you hold in your hand is real asset."

Almost at the same time, another investor with a state - owned background revealed that his institution has been "lying low" in the primary market in the past two years. Instead, it has invested in several nuclear power projects in the secondary market, just in time for the upward trend of the sector and achieved considerable book profits.

These two seemingly independent shifts jointly point to an area long ignored by traditional venture capital: infrastructure assets. Further observation shows that real - estate assets represented by new energy and data centers are becoming the new favorites of private equity funds.

This trend is mainly reflected in two aspects.

Firstly, the market is active with diverse participants. In addition to the traditional investment powerhouses - central enterprises, local governments, and industrial players, insurance funds and private equity institutions are increasing their investment. Domestic leading institutions such as CDH, CICC, and Shenzhen Capital Group have also successively established infrastructure funds.

Secondly, the scale of funds has increased significantly. The fundraising amounts of relevant funds of Blackstone and KKR have repeatedly reached new highs.

Regarding private infrastructure investment, global asset management giant KKR has also given a "qualitative" description, calling it "an asset suitable for all economic situations". It predicts that under the three major trends of "digitization", "green energy", and "de - globalization", infrastructure assets may enter a 20 - 30 - year golden development period.

All parties are getting active

Qin Feng, an investor in a PE institution, is in charge of the new energy and AI infrastructure direction. He said that for a long time, domestic private equity funds generally pursued a high - risk, high - return investment logic, so they paid limited attention to the infrastructure field with stable cash flow but relatively moderate growth.

However, this situation is changing. According to Qin Feng's observation, since 2024, the market's interest in infrastructure funds has significantly increased. More and more institutions are starting to study how to optimize their investment portfolios by allocating such "alternative assets" to cope with the increasing market uncertainty.

"The market seems to be getting active, and the investment intensity has increased significantly," Qin Feng said.

From the current market pattern, institutions actively participating in infrastructure investment can be mainly divided into three categories:

First in line are local state - owned asset platforms.

In the past few years, although transportation investment and urban construction investment companies across the country have generally been transforming into industrial investment groups, they still remain the backbone of investment in the infrastructure field due to their long - term accumulated resources and experience in this area.

For example, in August this year, CCCC Capital completed an investment in the Inner Mongolia clean energy asset package of China General Nuclear Power Corporation. This project is one of the country's first large - scale wind and photovoltaic power bases focusing on the "desert, Gobi, and wasteland" areas. It was fully put into operation in 2023, with an annual power generation of over 10 billion kilowatt - hours.

Even earlier, Anhui Transportation Holding Group initiated and established a new - type infrastructure construction mother fund. Currently, this mother fund has cooperated with Bank of Communications Capital, CRRC, etc. to establish multiple sub - funds.

Industrial capital is also making efforts.

In May this year, China Reform Holdings Corporation and China General Nuclear Power Corporation jointly established a fund with a scale of 25 billion yuan. Subsequently, China National Nuclear Corporation and China Life Insurance, etc. jointly invested 1.501 billion yuan to establish the Zhonghe Tianwan Nuclear Power Equity Investment Fund Partnership in Beijing, further strengthening capital cooperation in the nuclear energy infrastructure field.

On the other hand, PE is accelerating the layout of infrastructure funds, and the scale of single funds has repeatedly reached new highs.

Domestic PE institutions are actively following up. For example, earlier, the new infrastructure special investment fund under CDH Mezzanine completed its first - close of nearly 1 billion yuan. This fund focuses on investing in the new - type infrastructure IDC (data center) field.

In addition, institutions including GLP, Yuexiu Capital, Shenzhen Capital Group, CICC Capital, and Gaohe Capital have also established relevant funds.

Overseas, a typical example is the Blackstone Group. On September 9th, it announced the completion of the fundraising for its infrastructure secondary - share fund - Strategic Partners Infrastructure IV L.P. and related commitment plans, with a total scale of 5.5 billion US dollars, becoming the world's largest secondary - share fund focusing on the infrastructure field.

Last year, KKR also announced the final closing of its second - phase Asia - Pacific infrastructure investment fund, with a scale of up to 6.4 billion US dollars, making it the largest Asia - Pacific regional infrastructure investment fund to date.

The continuous increase in fund scale also reflects the recognition and enthusiasm of LPs for infrastructure asset investment from the side.

A $94 - trillion gap

According to McKinsey's data prediction, by 2030, the global infrastructure funding gap will reach as high as 5.7 - 6.7 trillion US dollars. According to the prediction data released by the G20 Global Infrastructure Hub, by 2040, the global investment demand for infrastructure projects will increase to 94 trillion US dollars.

Behind the huge capital demand lies more investment opportunities. However, the infrastructure field covers a wide range, and not all sectors have the same investment potential.

Qin Feng told me that currently, capital mainly focuses on two directions: one is data centers, and the other is new - energy assets such as nuclear power plants, photovoltaic stations, and charging stations.

This is closely related to the explosion of artificial intelligence.

In the past few years, artificial intelligence technology has developed rapidly, and the demand for intelligent computing has increased exponentially. Against this background, the "Eastern Data and Western Computing" project has been elevated to a national strategy. The layout of computing power and the commercial application of AI have locked in the long - term prosperity of data center assets.

On the other hand, the explosion of computing power demand has driven the long - term growth of social electricity consumption. Coupled with the huge global demand for "green energy" and the emphasis on the "dual - carbon" strategy, investment in renewable energy projects has also increased sharply.

This clear main line triggered by AI and running through "electricity" and "computing" has become a strategic track for institutional investors to focus on.

Of course, in addition to the structural opportunities brought by the development of AI, increasing infrastructure investment also hides the strategic transformation of institutions based on their own considerations.

In the past two years, affected by practical problems such as the narrowing of IPO exit channels and pressure on both fundraising and investment, the "sniper - style" investment model of traditional PE/VC, which relies on high - growth and high - valuation exits, has gradually become ineffective. The market's pursuit of "certainty" has been increasing.

A fundraising official of an institution mentioned: "In the past, when chatting with LPs, we talked about which sectors to invest in, which leading projects were in reserve, and how many times they could grow in the future. Now LPs don't care about these so - called extreme returns. They are concerned about how to make the fund more risk - resistant. Improving the investment success rate is what LPs hope to see most."

Infrastructure assets have the characteristics of being resistant to economic cycles, having stable cash flows, and being linked to inflation. They are particularly precious in the current context of increasing global economic uncertainty, which has also made them gradually become the most active direction for capital flow.

An investor from a transportation investment group in the Yangtze River Delta region revealed to me that after exploring the transformation of industrial investment, his institution also suspended equity investment due to unclear IPO exit channels and other reasons, and instead returned to real industries, focusing on the acquisition and merger of assets such as photovoltaic stations and charging stations.

Zhang Yue, the person - in - charge of real - estate investment in a south - western region, also said that although his current investment direction mainly focuses on local advantageous industries such as games and information technology, he also continuously pays attention to fixed - asset investment opportunities, such as the "source - network - load - storage" integration project. He frankly said: "Actually, we prefer fixed - asset investment because such assets are tangible and less likely to be questioned for causing 'asset loss'. Even if there are problems with low utilization rates, the risks are relatively controllable."

In addition, Zhang Yue told me that currently, many central enterprises, transportation investment groups, local governments, and private listed companies are actively deploying heavy - truck charging stations.

Capital, resources, and patience

Undoubtedly, infrastructure investment is a vast blue ocean, but rationally speaking, it is still an opportunity for only a few - especially for traditional VC/PE institutions.

In the traditional venture capital field, institutions believe in the "scatter - net" investment strategy: invest in ten projects, and as long as one becomes a "home - run" with a hundred - fold return, it can cover the failures of the other nine. This is a game about "odds". In contrast, infrastructure investment pursues long - term stable cash flows rather than explosive returns. In essence, it is a game about "probability".

To participate in this game, institutions must face three tests: capital, resources, and patience.

Firstly, there is the capital threshold. Infrastructure is a typically capital - intensive field. Take nuclear power plant investment as an example. The total investment of a single project can easily reach tens of billions of yuan. Even if only taking a small stake, a huge amount of capital is required. For RMB funds with a management scale generally between several billion and tens of billions, this seriously limits the diversification of investment portfolios. A partner of a medium - sized PE frankly said: "To layout infrastructure, one must raise a special fund with a longer term and a larger scale - but very few institutions can actually succeed in fundraising."

This involves the investment preferences of LPs. In the article "Just now, GLP GCP, managing $128 billion, announced a spin - off" on China Venture Capital & Private Equity Association, it was mentioned that in the context of high market uncertainty, the trend of LPs trusting "experienced and large - scale" veteran asset managers has become more and more obvious.

According to Pitchbook statistics, in the first half of 2024, more than half of the funds raised by global private equity funds were concentrated in 12 large - scale funds. Looking at a larger time frame and statistical sample, in the whole of 2023, experienced investment institutions (those with four or more funds) took away 86% of the total private equity fundraising amount.

Secondly, there are resource barriers. Investor Qin Feng pointed out that in the new energy field, especially in key sectors such as nuclear power and power grids, the "national team" is the absolute protagonist. For private equity institutions to get a share of the pie, they must have strong government relations and policy - understanding abilities, and more importantly, extremely high resource - integration capabilities.

Of course, for VC/PE, the most fundamental conflict in investing in infrastructure assets lies in the maturity mismatch.

Normally, the duration of VC/PE funds is 7 - 9 years, while for an infrastructure project, it may take 5 - 8 years from construction to generating stable cash flows. To achieve the ideal investment return, the holding period often needs to be 15 years or even longer.

However, it is worth noting that to solve this dilemma, some institutions have started to actively try innovative solutions. For example, some institutions choose to seek cooperation with ultra - long - term capital such as insurance funds, while others design more complex structured products.

Olive Asset Management, an asset management company under Noah Holdings, mentioned in an interview with foreign media that since last year, there have been infrastructure investment - related funds in the market that can distribute dividends monthly or quarterly and have a soft - lock - up period of within 2 years. This allows funds to pursue stable returns while also enabling more flexible asset management.

It is not difficult to find that although infrastructure investment faces many challenges, a group of institutions with long - term capital and industrial knowledge have gradually found their rhythm in this track.

(All names in this article are aliases)

References:

Deal Street Asia: Olive Asset Management  talks about why infrastructure investment has become the focus of the market. Olive Asset Management 

The golden period of infrastructure investment is right now. Brookfield

This article is from the WeChat official account "China Venture Capital & Private Equity Association", author: Wang Manhua, published by 36Kr with authorization.