Infrastructure Investing Goes Mainstream

In Brief:

As U.S. federal and state debt levels climb and institutional investors seek inflation-protected, long-duration assets, infrastructure has emerged as one of private markets' fastest-growing categories—yet the massive opportunity to privatize government-owned assets remains largely untapped.

Mike Dorrell, Chairman, CEO, and Co-Founder of Stonepeak, recently appeared on the Alt Goes Mainstream podcast to discuss how he built one of the industry's largest infrastructure firms from its 2011 founding to $76 billion in assets under management. His firm now touches everyday American life in extraordinary ways: 23% of U.S. internet traffic flows through Stonepeak data centers, 30% of refrigerated food passes through their cold storage facilities, and 10% of crude oil moves through their pipelines.

With Australian and Canadian pension funds allocating over 10% to infrastructure while U.S. institutions hover around 3-5%, Dorrell makes the case for why individual investors should consider exposure to an asset class that combines predictable cash flows, inflation protection, and essential monopolistic characteristics.

Big Picture Drivers:

• Market maturation: Infrastructure as a U.S. asset class is barely 20 years old, compared to private equity's 50-year history, creating opportunities for specialists who can identify assets before the broader market appreciates them

• Investor demand: Australian and Canadian institutions allocate over 10% to infrastructure—sometimes exceeding their private equity allocations—while U.S. institutions lag at 3-5%, signaling significant room for growth

• Essential monopolies: Infrastructure assets combine high barriers to entry, essential services, predictable cash flows, long duration, and inflation linkage—characteristics that create "economic moats" similar to Warren Buffett's investment philosophy

• Private market opportunity: The U.S. represents the world's largest market for privately held infrastructure across energy, transportation, and digital categories, despite government-owned assets remaining largely unavailable for privatization

Key Themes:

• The evolution from public to private: Infrastructure investing began with Australian state governments selling toll roads and airports in the late 1980s and early 1990s to address financial difficulties, creating an entirely new asset class that institutional investors could access

• Scale as competitive advantage: Being a "scaled specialist" allows firms to compete for the highest-quality assets with genuine economic moats, while maintaining deep sector expertise that generalist investors cannot match

• Investment culture over sector knowledge: Strong investment discipline—characterized by intellectual honesty, data-driven debate, and removing ego from decision-making—proves more difficult to teach than infrastructure sector expertise

• Democratizing access: The wealth solutions business represents an extension of institutional-quality infrastructure investments to individual investors who use these essential services daily but historically lacked exposure

Key Insights:

• Municipal bonds blocked early U.S. privatization: The tax-advantaged municipal bond market allowed U.S. toll roads and airports to fund themselves cheaply, creating a structural barrier that prevented the infrastructure privatization wave seen in Australia and Europe from reaching American government-owned assets.

• Private infrastructure demonstrates superior operations: Privately operated airports in Europe are consistently pristine compared to most U.S. airports, providing stark evidence that private sector management delivers better outcomes for infrastructure businesses than government operation.

• Building beats buying in data centers: Constructing new data centers costs approximately 10 times annual cash flow, while acquiring existing platforms commands 25-30 times cash flow, creating a significant economic advantage for firms that can originate and build rather than compete in auctions.

• Power scarcity transformed data center economics: AI's explosive demand for data centers created power shortages that flipped negotiating leverage from hyperscale customers like Microsoft and Amazon to data center owners who secured power access, dramatically increasing rental rates over the past two years.

• Infrastructure returns compound in real terms: Unlike long-term bonds that face inflation erosion, infrastructure assets often pass through inflation increases, allowing returns to compound over 20-30 year periods while protecting against the real value destruction that bonds suffer.

• Connectivity data centers possess true moats: Former telephone exchanges that serve as connection hubs for entire cities create network effects where every new service provider must connect, generating high-teens unlevered returns on capital with strong pricing power that distinguishes them from commodity hyperscale facilities.

Memorable Quotes:

• "Absolutely nothing excited me about infrastructure. When you're a 25-year-old, it kind of sounds, in fact, when you're 50-year old, it still sounds pretty boring if you're being honest with yourself." - Mike Dorrell, explaining his accidental entry into infrastructure investing through a desire to work in New York rather than passion for the sector

• "23% of all internet traffic in the US goes through our data centers. 30% of all refrigerated food goes through our cold storage facilities. 25% of all containerized port traffic is in our containers, and 10% of all crude oil in the US goes to our pipes." - Mike Dorrell, illustrating Stonepeak's massive impact on daily American life

• "If you look at Buffett's portfolio, his two biggest holdings are infrastructure assets. I think his biggest holding is the BNSF railroad and his second biggest holding is his utility company." - Mike Dorrell, drawing parallels between infrastructure's economic moats and Warren Buffett's investment philosophy of seeking businesses with durable competitive advantages

• "There's something about an asset that maybe delivers a 13% return but delivers it year in year out for a long long long time." - Mike Dorrell, explaining why consistent, reliable returns over extended periods can ultimately generate extraordinary wealth despite appearing less exciting than private equity's 20-25% target returns

The Wrap:

Infrastructure's transformation from an Australian innovation to a mainstream institutional asset class reflects broader shifts in how capital flows toward essential, monopolistic businesses with predictable cash flows and inflation protection.

While U.S. government-owned assets remain frustratingly unavailable for privatization despite mounting debt pressures, the massive privately held infrastructure market offers sophisticated investors opportunities to capture returns from assets that touch everyday life—from internet connectivity to food distribution.

As wealth channels open access to individual investors, infrastructure's unique combination of bond-like stability with equity-like appreciation and inflation protection positions it as a critical portfolio component. The asset class's relative youth in the U.S. market suggests significant growth ahead as allocations catch up to the 10%+ levels already standard among Australian and Canadian institutions.