Animal Spirits Podcast - Talk Your Book: How Infrastructure Funds Work

Episode Date: October 13, 2025

On this episode of Animal Spirits: Talk Your Book, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ben Carlson⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Scott Litman, Managing Director and Portfolio Manager at GCM Grosvenor to discuss: investing in data centers, airports, other types of infrastructure assets, and more. Find complete show notes on our blogs... Ben Carlson’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠A Wealth of Common Sense⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Michael Batnick’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Irrelevant Investor⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Feel free to shoot us an email at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[e-mail]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ with any feedback, questions, recommendations, or ideas for future topics of conversation. Check out the latest in financial blogger fashion at The Compound shop: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://idontshop.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits Talk Your Book is brought to you by Sion Investments. Go to sioninvestments.com. That's C-I-O-N to check out the Siongrovner Infrastructure Fund. Cyaninvestments.com to learn more. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Redhol's wealth management. This podcast, is for informational purposes only and should not be relied upon for any investment decisions. Clients of Bridholt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spreads with Michael and Ben. On today's show, we are rejoined by Scott Littman, who is a managing director and portfolio manager at GCM Grofner. On today's show, we dive back into infrastructure and get more granular as to what exactly are these investments and we've done like the roads and all that sort of stuff but what else is out there so for example i last week or this

week was driving to jfk on my way to boston and they're redoing the terminal i don't know how long it's going to take oh did they feel jealous about liguardia's redo as they should it's a disaster so jfk is the the worst one now. Yeah. Okay. And Lord knows how long that's going to take getting that sweet, sweet government money. And I guess not just government money. Of course, there's private funding.

That's what we're talking about today. Right. Toll roads, it's airports. It's a lot of things. Data centers. These are things that are highly, highly capital intensive. So we spoke today about the opportunities, the risks and reward, the risk profile, the cash flows, the leverage, like really went 30 minutes deep.

It really is a new asset class for a lot of people. We invested in infrastructure funds at my old endowment fund. Even then, it was still relatively new to think about. And so especially for advisors and retail investors, it's a whole new thing that they've never really heard of before. I think it's one of those things that like intuitively makes sense. Yeah. Yeah.

It's sort of like farmland. Yeah, I understand. I mean, obviously there's nuance involved, right? like a million things to unpack, but at its core, it's a pretty, it's a concept that resonates. Yeah. All right. So here's our talk with Scott Living. Scott, welcome back to the show.

Thanks, guys. It's great to be back and join it the last time. All right. The biggest topic in the market these days was sparked by the news of the Oracle OpenAI. Yes, Oracle, Open AI partnership. money is a booming the next leg of the rally is going to be financed not just with free cash flow of which there's an ample amount but also with debt so how are you all thinking about data centers hyperscalers negative cash flow where where are we in the cycle what's going on

we're in the first two innings so we got a long we got a long way to go uh It's an exciting time, but as with any megatrend, there are pitfalls, right? So as we look at this opportunity, what do we know? We know that the need for incremental data center capacity is massive. Hard to even put a number on it, 4x, 5x, 10x. It's tremendous. As a result, the need for incremental power is finally seeing very significant increases in demand for the first time, really.

So if you look at power demand for the last almost 20 years, certainly the last 15 years, it's been almost flat. But with the interjection of the demand from data centers, we are finally seeing a significant ramp. these growth profiles present tremendous opportunity, but also some tremendous risk. And so, one, we're going to see a ton of capital go into the space. Not all those opportunities are going to be created equal. And two, where that capital goes and where the opportunity lies is going to be a function of, one, certainly what can be built and where.

so land and labor, but also the ability to connect to power. And those are going to be some of the biggest questions that we have to answer in the next 10 to 15 years. So we actually had a client come to us a few months ago and said, hey, people in my rich person circle are investing in data centers. Like, I'm hearing about it from these people. Is this something I should be investing in? And said, look into it for me. And the big question was, like, what's the difference between investing in these data centers? centers and just investing in any other real estate.

And so I guess my question is, like, is there anything special about investing in these things or is it really just like you're thinking through the cap rate? Like, what exactly is the opportunity here? I think there's a couple of ways to look at it. And the way that different clients, the way that the different investors approach it is what drives the differences. So, for example, some folks are exclusively focused on the, working only with the hyperscalers and working only with someone that will sign up a 15 or 20

year contract. That's a very different underwrite than somebody that's going to build a box with air conditioning and try to find people to come and use it as a data center, right? And so the economics around that are very different. And so is the risk. And we'll talk. And we'll tell you, as an infrastructure investment, we want certainty of cash flows, right? So we love that opportunity to invest with a hyperskeller that's going to give you 20 years a contract tenor that gives you your cash flow. And then we still have to think about, okay, what happens at the end of that period? But there's a lot more certainty there versus that other scenario where you buy a great piece of land, and there's folks that do this, buy a great piece

of land, you build a data center, you try to fill it, and if you don't fill it, you know you've got a great piece of land, but a totally different underwrite. You mentioned the amount of energy that's going to be needed to power these data centers. In looking at the portfolio, I see you all break it down by energy slash energy transition, as well as digital infrastructure. unpack what the differences between those two things are, and where is the power coming from? In some cases, that's really easy. And in some places, you'll see some very significant overlap. So let's start with the energy side. That's easy. Energy has been investable as an infrastructure

opportunity for 25, 30, 40 years. And what is energy? It's power plants. It is gas-fired power plants. Frankly, it used to be coal-fired power plants, a lot less so now. It's solar. It's wind. It's hydro. It's biomass. Now you're seeing things like geothermal.

You're seeing hydrogen. Not so much nuclear here in the U.S., but that will exist worldwide. All of those different elements are energy. And now you're also seeing some additive technologies, things like battery storage, which allows you to take energy when it's produced, store it and then put it back into the grid at the right point in time. All of that's energy. Digital, for us, for most, can be broken down into three categories. Data centers, fiber, which is what's connecting, you know, the highways, if you will, moving information, and towers, which is the wireless equivalent.

And so those are the three elements of digital. What's happening now in the data center space, in particular related to AI, is you have all this need for data storage. That's what the data center does. And you have to power that somehow to keep it cool and to run all the data. the servers in the space. So, one, you can connect to a grid, existing power supply coming from existing power production. Two, you can start to put some batteries on the site and store your own power.

Three, you can throw some solar panels up on the roof and reduce your need from the grid. And four, and what we're seeing more and more now for the first time, is you can can transact directly with power supply that has no intention of selling into the grip and is basically built on a built for purpose basis just for you. So lots of different ways to kind of be engaged in the space from both the digital and the energy supply side. So you said that this is maybe the first or second inning and with a caveat that no one really knows how this is going play out. Like, how long do you see this buildout happening for? As we think about the buildout, at a minimum, I think we're looking at increasing energy supply and increasing data storage

need for easily the next 15 to 20 years. Wow. Right. So that's the starting point. I think if you look at the trajectory of that curve between now and 2030, it's straight up and now. on the data center side, so going from, I don't know, 150 gigawatts of supply today to 600 or so when we get to 2030. But then from, and the energy is a little bit more muted because data centers, believe it or not, today data centers only really represent about 5% of energy uses. They expect that to double over that same period of time to something closer to 10, 11 percent. So power demand is made up of a lot of different things. Data centers are still a small

piece, just the fastest growing part of what's coming in the next five to 10 years. We're here today talking about the Sion-Grovener Infrastructure Fund. The ticker is CGIQX. Are there any ways or are there ways for investors to get access to infrastructure in public vehicles or is private infrastructure the only play? I think there are lots of ways to play the infrastructure space. There are ETFs that focus on infrastructure in the public space, and there are companies, right? I mean, the utility companies are a great example. Some of the IPPs, the independent power producers, you know, take a look at a stock like Constellation Energy and take a look at how that's run over the last two years. It's had an extreme

extraordinary rough. So I do think there are ways MLPs are a way that people have played the midstream space. They've had a complicated history, certainly. I'm sure you guys follow that in great detail. That's a good word. Good word to describe it. But the yields. But yeah, sometimes. Yeah, Scott, what is the toll booth for data centers? Please tell us. A lot of the data center, a lot of the data center exposure right now is held in REITs. So you're seeing it in vehicles that have a much more kind of real estate sort of orientation, but one that's used in the infrastructure space as well. And then a lot of the access otherwise is still through private vehicles, right?

Which is why I think to Ben's earlier point, you're hearing about some of the high net worse that are going and finding these opportunities in more bespoke ways. A lot of private investments use leverage. Is that the case with the way you all? all deploy money as well? Yeah. So we and everybody really that plays in the infrastructure space is utilizing leverage. Most of that leverage is utilized at the asset level. So we're looking at cash flows and so a data center is no different. If we have Microsoft as a 20 or 25 year contract behind our data center, you can imagine that the certainty of that cash flow allows us

to use meaningful leverage because of how comfortable the lenders can get with the credit of Microsoft as you're offtake. So there are a lot of financial advisors who don't really have the understanding or the expertise to invest in alts. And so a lot of times what they're doing today is going to a platform. And they're saying, listen, the alternative investment universe is very wide. There's a lot of different fund options and strategies. Build me a diversified model because I don't want to just endorse.

invest in this one timeframe or this one strategy. And so a lot of times it'll look like a private equity fund and private credit for sure these days and then venture capital and then infrastructure is usually in there as well. So what is it about infrastructure that makes it different from these other alternatives and why is it typically part of that diversified alt structure for a lot of people? I think people will look at infrastructure. They'll do infrastructure a lot of different ways, and infrastructure, a little bit like the transition to data centers and AI today is still in its early innings, right? Infrastructure has been around forever, but private investment in infrastructure is still relatively new. I think the very first infrastructure funds that

kind of existed probably developed in the 90s or maybe 2000, you know, Macquarie, kind of one of the early leaders in the space and the Australians were ahead of the game. The Canadians have always been big proponents. I've always why is that such a big asset class in Australia? Because they have like a lot of the people have their retirement assets in those funds. Is it just because it kind of the fund structure started there? Macquarie was an Australian. Like what was it about that Australians were drawn to this asset class? Yeah, I think it's that they just had a really good product. I think it's because they had a captive investment opportunity, just given kind of what it takes to move things around Australia and to create power and some of the assets

that were investable in the way that they utilize private capital. But now you're seeing it all over the place, right? And again, I think that the Canadians were early to it. The Canadians were early to it largely because of the energy sector, largely because they produced oil, they produced gas. They were very comfortable with what they were investing in. It was a big export. So they were able to kind of utilize that as a way to fuel opportunity. And so for a lot of folks, what you've got now is you've got the last 10, 15 years has just been tremendous in terms of the need for people to enter the space. The other thing you're seeing is you're seeing more volatility in other asset costs. So with real estate being a little less predictable and

having some real, you know, seeing some cracks in that market relative to COVID, relative to office space, et cetera, infrastructure is starting to really develop as a much more stable, less volatile way to a similar or even better returns. And that's what's getting people excited. The opportunity in the U.S. has only opened up beyond energy with the need of municipal, state and federal government to go and capture private capital. And that's, and that's what opened it up. And now we're seeing a lot of opportunity that comes from that growing need to fund infrastructure. The investment opportunity, is this a income play or is it capital appreciation or how do you think about infrastructure? How should investors think about it? I would tell you that

historically, infrastructure has been viewed as an income play, as a low return, high yield income play. Quite frankly, it was considered for years and years as a fixed income replacement. That's not exactly the way that we play the space. That's not exactly the way that I would play the space. And the challenge to playing it in that way is that now you've seen interest rates gap out. Credits a lot more interesting. And when credit approximates the outcomes from infrastructure, you'd rather be in credit. So for us, I think the opportunity here is something more blended. I think when we're looking at the opportunities around infrastructure, we do want yield, but we're marrying that to a return.

How do you get out of these investments? So, like, let's use an airport, for example, and I know you all are active there. Do you exit the investment? And if so, to who? How? What does that look like? Yeah, it's a good question. And I think the answer is different in each case depending on the profile of the investment that

you own. So I'll say this, we see investments, we've looked at investments, we've participated in investments in JFK, in Heathrow, in LaGuardia, in a number of other airports around the world. Where we can find really stable yields in some cases, we'll stick around, right? I mean, that's a really nice place to be. And what happens with those investments is those returns are really sticking. because you have scarcity. And so there's only so many gates at JFK.

So you got a pretty good idea that you've got the opportunity to put some pricing pressure on the airlines, and you're going to have a continuing yield, and you're going to be full. So when we can underwrite that revenue stream, we'll hang around. There are other ways to play the airport space where you're building out a terminal. You're making it better. you're making it more efficient, and that build-out means you're going to bring airlines, you're going to try to increase volumes, and at some point, that will levelize.

And so in that case, what we're doing is we're working through the construction phase, we're working through the ramp phase, and then we're looking to exit to a lower cost of cap. So the idea behind infrastructure, and correct me if I'm wrong, is that you get a fairly stable cash flow base. So how are you, if that's the idea, how are you getting these, if it's a relatively stable cash flows that are coming in? One of two ways. One, you're getting a stable yield because you're taking some amount of growth or construction risk. Right.

And so the first few years you may not be seeing anything, but then you've built it to something, you know, they'll call it building to core. And so you're building to something that's very yield generative. And then you don't have to do much but maintaining it. but maintain it in order to capture all of that future revenue, and you've got a 50-year concession, right? So you've got a long-term concession with a port authority or a landowner or somebody else. You spend all the CAPEX up front, and you're getting a return over a period of years that's highly predictable. That's one way. Another way, you're taking it off of the

balance sheet of a corporate that simply, you know, finds it dilutive to what they're otherwise doing. And so they're willing to guarantee you a certain customer contract relationship with minimum volumes that you can easily underwrite and you're solving backwards for a return. That creates some real opportunity. I think I said there were two ways. I'll give you a third. The third is you're buying something that's out of favor. And so what do I mean by that? This is a really neat one. Three years ago, four years ago, everyone talked only about renewals, which is a little bit where people are today with data centers and AI. So what happens in those cases? A lot of capital chases them. They bid returns down. The cost of those things to participate goes up. What's interesting

is when that happens, other things open up as opportunity. So when renewables got expensive, conventional power got cheap. So we did a lot of buying of conventional power, and it had tremendous yields on it simply because there was a dearth of capital chasing it. So the opportunity was great. Some people didn't chase it for corporate reasons and policy reasons. Others didn't believe in the fact that it was going to be around in 10 years. I think they were wrong.

And now you've got a new administration who's very bullish on conventional power. And you've seen this great opportunity that's all born from investments made three, four, five years ago. So a few different ways to achieve that yield. I'm looking at some of your marketing collateral. And you've got your portfolio holdings. And it shows what it is. it shows the sponsor, and then it shows your role. So, you've got you're either a co-investor, a consortium member.

You've got secondary investor. What are some of these different terms that, candidly, I'm not super familiar with, and I imagine a lot of the advisors listening to might be like, huh? So I'll talk about this at a high level, because I think this applies to just about any fund. and it's just an approach thing. So I'll break this down and I'll do it in a way that I think it's kind of fun and clear. When you invest in a fund that seeks control of an investment, the only thing you get are deals sourced by that fund, right?

Because they need control. So what they're doing in that instance is they've got to go buy control. So if you're betting on that, whether it's any great fund in the market, you name it. I don't know, KKR, Macquarie, GIP, they're all terrific, Blackstone. What you're going to get is you're going to get all KKR deals and all Blackstone deals and all Macquarie deals because that's what they do. When you invest in a fund like ours, and there are many, that is more open architecture, we don't care whose deal it is, we just want good deals, right?

And so I call it the greatest hits of infrastructure, right? It's a greatest hits approach where not only do you have diversification by deal and by sector, but you have it by sponsor. It's kind of like making a mixtape for a long road trip. What I want to do is rather than listen to 30 songs by the same artist, I want the top two songs by the top 20 artists that I like. That's good. That's good.

All right. So where do you find the hits? How do you get these deals? Yeah. So I love that question. Part of that is a function of just being in the market for a long time. Part of it is a function of being in infrastructure. So infrastructure deals are really large.

And because they're really large, there's always a giant capital need. you also are in a space that I view is in, you know, if it's not this first or second inning for infra, it's the third inning or fourth inning. So there's all of these new players evolving. They're trying to do new and innovative things. They're trying to, you know, run before they can walk. They're doing all these. They've got all these great ideas. They've got no capital. Well, our resource is our capital and our willingness to work with all of them. And as a result, The phone's always ringing. There's always somebody that wants and needs a partner in a deal.

Sometimes it's the biggest players in the space. Sometimes it's the new entrance in the space. It doesn't matter to us because we can underwrite the asset. So how do you underwrite these assets? Is this quantitative, qualitative, what sort of team is behind you? How does all this work? This is very, very far afield from the traditional diligently of a traditional advisor. Especially since, like you said, the deals are so big. And I guess they have to be

because you're sometimes buying them from a municipality or government, right? That's right. Yeah. I mean, these are, you know, I mean, like we just, we just bought a small piece of a 16, we bought a $100 million piece of a $16 billion company a few weeks ago. Right. And, and so massive deal, we bought it from a pension that was looking to sell down a little piece. Great outcome for them. Great outcome for us. We were thrilled. They were thrilled. and we love those types of partnerships. In that way, some of what we're doing is akin to what people will do in the public market,

but we're doing it in private markets. When you go and buy a stock, you're not necessarily buying control of the company. You're buying 0.1% or 0.5% or maybe you're even buying 5%, but it's a minority. And you're having trust in faith that people know how to run the company.

It's the same concept for us with the additional benefit that we have really good transparency and the ability to underwrite the asset. And there's a team full of people that comes from a background of having invested for control in their past. So lots of experience picking these assets apart and understanding what works and what doesn't. So what are some of the things that you look for on like the negative side that you would say, yeah, no, this is without even like without even doing deep diligence, this is not for us.

Yeah. So right off the bad, we care a ton about cash flow certainty. We care a ton about Greenfield versus Brownfield. And just to kind of make that point more clear, new build is harder because you're necessarily taking more risk. Operating assets, Brownfield assets are a lot easier to underwrite because you have operating performance. You have cash flow certain. You have features that you can underwrite, kick the tires on, and understand. So those are things that we care a lot about up front. What's really powerful when we are evaluating an opportunity, and this is, I think, one of the greatest advantages of an approach like ours, where you're doing something and you're agnostic as a source, is when we look at a data center, we've probably seen a dozen different underwrites

from a dozen different sponsors. And so what we can put on a page is the entry multiple and the cash flow profile and the capital structure and the growth profile and the CAPEX profile and the refinancing assumptions

and the exit assumptions. And you know what pops off the page? outliers, right? Who paid too much? Who's got unreasonable assumptions as to growth? Who's assuming multiple expansion at exit? And those are big no-no. Yeah, but no, to your point, because these are stable cash flows, you're right, it would make sense that if there's a huge outlier, then it would stick out like a sore thumb, right? If something that, if the numbers didn't make sense, then there's got to be something wrong. That's exactly right. And so what you're getting is risk-adjusted return, right?

You're seeing, and it sounds really easy. What's hard is aggregating the information. But once you have it, it's really valuable. Scott, I feel like I have about 14 hours more of questions. This is a very interesting and new opportunity for people to access to these investments. And of course, well, new on the wealth side, right? Like, I know this is an institutional space for a long time. But like everything else, especially things that are new and interesting.

If you're listening, please make sure you do all the diligence necessary because this is very different than buying a stock or an ETF or an index or anything that we're used to doing on a day-to-day basis. So with that said, Scott, for people that do want to spend 14 hours with you uninterrupted and learn more about the investment opportunities and, of course, the risk and everything else in between, Where do we send them to learn more? The starting point to learn more is this is a Sion-Grovenor partnership. So the Sion team, their website is a great place to get more information, and that team has been in the Interval Fund space for a very long time. They're one of the most prominent players in that space. That's why we had Grovener partnered with them.

And then, of course, Grovener and our web page will provide you access to the infrastructure your team and our platform, and we'd be happy to spend more time unpacking this. And like you, Michael, we could talk about it for 14 or more hours. All right. Appreciate the time, Scott. That was great. Okay, thank you to Scott. Thank you to SionInvestments. If you're going to check at sionininvestments.com. To learn more, email us, animal spirits at the compound news.com. No assurance can be given that any investment will achieve its objectives or avoid losses. Certain views expressed herein are the personal opinions of the speaker and should not be taken as representing the views of the firm. To the extent, this podcast contains any forward-looking

statements. Such statements represent good faith, expectations concerning future actions, events, or conditions, and can never be viewed as indications of whether particular actions, events, or conditions will occur. Past performance is not necessarily indicative of future results.