Private Equity and Infrastructure: What the New Investment Landscape Means for Data Centers

The latest analysis from Boston Consulting Group paints a complex picture of private infrastructure investment as it emerges from a period of turbulence. While deal volumes and available capital declined in 2024, infrastructure assets under management (AUM) hit an all-time high, and fundraising grew by 14%. As investors recalibrate their strategies, one sector stands out as both a challenge and an opportunity: digital infrastructure, particularly data centers.
 
"Though the market remains turbulent, data center demand is driving an influx of investment in infrastructure,” said Vivian Lee, Managing Director and Partner at BCG. "Driven by government initiatives and private sector collaboration, data infrastructure and energy production are clear growth opportunities. In fact, we expect global demand for data center power to grow at approximately 12% on a compound annual basis from 2025 to 2030.”

A Shifting Investment Environment

Private equity and institutional investors have long been drawn to infrastructure’s promise of stable, long-term returns. However, rising interest rates, economic volatility, and evolving risk appetites have forced funds to rethink their approach. A major theme of BCG’s report is that general partners (GPs) are expanding their mandates, launching specialized funds with higher risk profiles, and increasingly targeting nontraditional infrastructure investments.
 
Data centers sit at the intersection of these trends. While deal volume in digital infrastructure fell—52% in Europe and 24% in North America—interest in data centers remains high, driven largely by generative AI’s insatiable demand for computing power. Investors recognize the sector’s growth potential but are cautious due to historically high valuations and increasing competition.

The Role of Data Centers in the Infrastructure Playbook

Data centers have evolved from niche assets into a core component of modern infrastructure portfolios. This transition has been accelerated by cloud adoption, hyperscale expansion, and the rise of AI workloads, all of which demand more capacity. However, the sector’s appeal is counterbalanced by the challenges of land scarcity, power constraints, and regulatory scrutiny, which make site selection and development more complex than ever.
 
"A common misconception is that data center demand is solely a result of generative AI adoption, and that is not the case. While AI is driving a swell of data center investment, non-AI applications such as file storage and sharing, transaction processing, and other conventional business applications moving into the cloud represent the majority of power demands and will do so in the future,” added Lee.

Capitalizing on the AI Infrastructure Surge

Notwithstanding, as 2025 unfolds, the data center industry is being reshaped by AI infrastructure at every layer—from chip design and server architecture to network interconnects and site-level power provisioning. Large language models (LLMs) and foundation model training have triggered demand for megawatt-scale deployments that far exceed the capabilities of traditional enterprise data centers.

This surge is reshaping investment priorities. Private equity firms are increasingly seeking exposure to hyperscale development pipelines, AI-specialized colocation providers, and modular infrastructure platforms that can meet AI’s unique density and cooling requirements. At the same time, the long timelines for utility interconnection and grid upgrades are pushing funds to favor operators with secured power capacity or alternative energy strategies in place.

“There’s a clear bifurcation,” noted one fund manager familiar with recent transactions. “We’re seeing premium valuations for data center platforms that have both land and power locked up—especially in Tier II and Tier III markets near major AI hubs. Capital is flowing toward builders, not just buyers.”

Power Procurement and the New Frontier of Energy-Driven Investment

Perhaps the most significant constraint—and opportunity—in 2025 is power. The need for massive, low-carbon energy sources has transformed power procurement into a strategic lever for investors. Funds are now underwriting data center deals based not only on EBITDA multiples, but on the operator’s access to clean power, favorable utility rates, and infrastructure-ready land.

As AI workloads converge with national clean energy policy goals, new alliances are emerging. Investment vehicles are being structured to include co-located renewable generation, long-term power purchase agreements (PPAs), and even direct ownership of energy assets. In the U.S., data center developers are accelerating activity in power-abundant regions like the Southwest, the Pacific Northwest, and parts of Canada where excess hydropower and stranded natural gas can be monetized through digital infrastructure.

“Data centers have become one of the fastest pathways to monetize power assets,” said a managing director at a global infrastructure fund. “We’re now evaluating projects from the ground up—starting with the megawatt and working backwards.”

Private Equity's Evolving Playbook

Private equity’s traditional approach to infrastructure investing—focusing on predictable cash flows and long-term stability—has been challenged by the data center sector’s rapid evolution. Investors are responding in several ways:
•    Sector-Specific Funds: The rise of digital infrastructure-focused investment vehicles reflects growing interest in the sector. According to BCG, these funds accounted for 43% of new launches in 2023, up from just 11% in 2021. This suggests that investors are seeking more targeted exposure to data centers rather than lumping them in with broader infrastructure portfolios.
•    Higher-Risk Mandates: With traditional core infrastructure assets offering lower yields, some funds are moving up the risk curve, pursuing value-add and opportunistic strategies. This means investing in early-stage projects, repurposing existing buildings for data centers, or taking on more complex redevelopment plays.
•    Retail Capital and New Funding Structures: The shift toward retail investor participation could have significant implications for the data center sector. New fund structures with lower investment minimums and enhanced liquidity could channel fresh capital into digital infrastructure, further fueling expansion and M&A activity.

Operational Excellence as a Differentiator

Beyond capital deployment, investors are increasingly focused on operational efficiency. BCG highlights how funds are refining their due diligence processes, developing target operating models, and prioritizing financial discipline at portfolio companies. In the data center sector, this translates into:
•    Optimizing Energy Efficiency: With power costs and availability emerging as top concerns, investors are prioritizing operators with robust energy management strategies, including the use of renewables and onsite generation.
•    AI and Automation: Portfolio companies are deploying AI-driven tools for predictive maintenance, capacity planning, and security, enhancing efficiency and reducing operational risk.
•    Interconnection and Ecosystem Development: Investors recognize that standalone facilities are less attractive than interconnected hubs. This is driving interest in carrier-dense colocation centers and cloud on-ramps.

The Outlook for 2025 and Beyond

As the infrastructure asset class matures, digital infrastructure—and particularly data centers—will remain a focal point. While high valuations and power constraints may limit near-term deal activity, the long-term fundamentals remain strong. The demand for AI-driven computing, edge deployments, and sustainable infrastructure solutions will continue to create investment opportunities.
 
"We're still in the early stages of AI implementation, and the data centers being built today may have different applications in the future as model architectures, applications and power demand evolve. But grid power demands and suppliers will remain the focus as other forms of traditional data center management grow rapidly,” said Lee.
 
For private equity firms and institutional investors, the challenge will be navigating this evolving landscape while balancing risk, return, and operational complexity. Those that can successfully adapt to the sector’s unique demands—whether through specialized funds, innovative financing models, or operational enhancements—will be best positioned to capitalize on the next wave of data center growth.

At Data Center Frontier, we talk the industry talk and walk the industry walk. In that spirit, DCF Staff members may occasionally use AI tools to assist with content. Parts of this article were created with help from OpenAI's GPT4.

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