For years, the term “infrastructure” has evoked visions of airports, toll roads, and water utilities, the archetypal “Infrastructure 1.0.” But as Nicholas Kuys, managing director of private infrastructure at Partners Group explains, that paradigm has shifted. Advisers now have access to a profoundly different sector – one shaped by global megatrends, underpinned by innovation and increasingly available through structures built for private clients.
“The sector’s really morphed,” Kuys says. “What we’re seeing now is a much broader definition of infrastructure, encompassing energy transition, digitisation and the infrastructure of future cities. These are more complex investments, but they offer higher return potential if you have the asset management capability to capture that value.”
At the heart of this evolution is the rise of “Core Plus” infrastructure, assets that retain defensive characteristics but offer alpha through active management. It is a space Partners Group has embraced with vigour. The firm is backing everything from fibre networks to data centres, and from battery storage to grid-firming gas plants. These are not passive exposures; they are tailored plays built around second- and third-order thinking.
Energy transition, for instance, is not simply about deploying capital into wind or solar. Partners Group deliberately avoided the initial rush into large-scale solar in Australia due to pricing inefficiencies and regulatory uncertainty. “People flooded into solar without securing proper offtake structures,” explains Kuys. “As a result, many are now underwater. We chose wind because it produces in the morning and evening when demand is high and solar is offline. It was a clear value play.”
But even wind has now become crowded, with compressed returns and elevated risks. The alpha today, Kuys argues, lies elsewhere, particularly in energy security solutions. “Battery storage, firming capacity, small-scale gas. That’s where you can generate outperformance now,” he says. “You need to think ahead of the market. That’s what second-order thinking is all about.”
This forward-thinking approach is crucial in sectors where infrastructure intersects with technology. The relationship between data centres and renewables is a prime example. “As data centres get larger, they need dedicated, sustainable energy solutions,” Kuys says. “We’ve invested in Good at North in the Nordics, a 100 per cent renewables-powered data centre. That’s solving a real dilemma for ‘hyperscale’ clients who are also some of the biggest global emitters.”
(‘Hyperscale’ refers to the complete mix of hardware and facilities that can scale a distributed computing environment up to thousands of servers, to handle massive workloads. As its name implies, hyperscale is all about achieving massive scale in computing – typically for big data or cloud computing.)
The opportunity for advisers, however, has historically been constrained by structural issues. “Infrastructure’s always been at the institutional end of the market,” Kuys admits. “Private wealth clients have found it hard to access because of the J-curve, illiquidity and pooled structures that weren’t designed with them in mind.”
Partners Group is attempting to rewrite that script. The launch of its Next Generation Infrastructure Fund is a response to years of client demand. “Investors looked at our performance, which is consistently top-quartile, with net realised returns north of 20 per cent, and asked, ‘when can we access this in a format that works for us?’” Kuys says. “Now we can offer that, thanks to the maturity of the secondaries market.”
It is this confluence, of strong direct investing credentials and deep secondaries expertise, that Kuys believes sets Partners Group apart. “Secondaries are great in theory, but you need a global team, real skill and scale to pick through them properly. That’s what we bring to the table,” he says. “It’s not just about having access. It’s about having the ability to filter and select.”
For advisers conducting due diligence, Kuys offers a caution. “You need to understand how your fund is accessing the underlying assets,” he says. “Are you getting line-by-line allocation, or are you standing at the back of the queue behind institutional money? That can be the difference between accessing alpha or getting diluted returns.”
The timing, Kuys believes, is ideal. Institutional allocations to infrastructure have surged in recent years, from 5 per cent to as much as 10 per cent of portfolios, and advisers are now seeking alternatives that offer downside protection with upside potential. “At a time when people are cautious about valuations, and traditional de-risking means moving to low-return assets like cash or bonds, infrastructure is a compelling middle ground,” he says.
Despite this, access remains patchy. “Frustratingly, our fund still isn’t on many platforms,” Kuys says. “But the demand is there, and we expect that to change rapidly. Advisers want global exposure to infrastructure, and they want it through high-quality vehicles designed for private clients.”
For those looking to diversify clients’ portfolios with resilience and thematic exposure, infrastructure is no longer just for institutions. “We’ve matured as a market,” Kuys concludes. “Australia knows infrastructure. We’ve exported it, just like Tim Tams and Shane Warne. Now it’s time for advisers to reclaim it, with the right structures and the right thinking.”