CAIS Panel 'The Great Rebuild: Investing in Tomorrow's Econom'

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00:00And speaking about the economy today, our very own Romain Bostic was at the Case Alternative

00:04Investment Summit for a conversation on investing in tomorrow's economy. Here's part of that

00:09conversation. You need power to run these data centers, but you also need power because we're

00:14electrifying everything. And the biggest driver of electricity demand is that we're moving from

00:20carbon-based cars to electric cars. And for the first time in 20 years, we're actually going to

00:27be needing more electricity. Last 20 years, electricity production in America has been

00:32constant. We need about 40% more than we currently generate over the next decade. And so there's a

00:38huge investment that you need to make in generation and transmission and storage. And that number,

00:43just to give you another T number, McKinsey estimates between now and 2040, we need 23

00:50trillion. That's like almost our whole GDP in power infrastructure and generation assets.

00:57So Ken, I mean, where's that money going to come from? I mean, I know now some of that money is

01:02coming off of balance sheets, but at some point, some of these companies are going to have to go to

01:06financial markets to get it. Absolutely. And I would say that, you know, I think that's obviously

01:11a lot about, you know, a lot what we're talking about here today and yesterday. And then the reality

01:17is that the private markets, the alternative investment world is going to power that. So there's

01:23a link between the democratization of alternatives and private capital and funding that infrastructure

01:29build out and that growth. I mean, if you look at overall, you know, where that capital will come

01:34from and has moved from, it's, you know, capital can move more quickly in the private markets to

01:40opportunities. It is funding in large part what's happening and significantly not from the banks.

01:46I mean, if you look at where most of the capital is coming from, it's coming from private credit managers.

01:50It's coming from private equity investors. We're an investor today in 350 U.S. private equity funds,

01:57obviously tracking where they're investing on a regular basis. Directly, we have investments in

02:02about 50 companies. And although we're not, like my colleague here, we're not a direct investor in

02:08data centers, we're an investor in, and I think this is sometimes overlooked, all the infrastructure

02:12and all the businesses that are feeding into those data centers, right? So today we have investments

02:19in 50 companies in engineering and software development that are all playing into that,

02:27over $6 billion invested in the mid-market companies that are feeding into that transformation. So I think

02:34that private markets, private credit, private equity alternatives overall, and certainly what's happening

02:38in the democratization of alternatives is playing directly into investment in that re-industrialization.

02:45Milton? So, you know, there's no one single source. When you listen to the numbers that McKinsey and

02:52others expect in terms of the demand, right, you need the banks, you need insurance companies,

02:59you need the wealth industry, and what you need is long-term patient capital, right? And so far,

03:05we were having this discussion a little bit last week. So far, it's been fairly easy because most of

03:12these, particularly large data centers are being built for the Amazons of the world, the Googles of the

03:19world, and so you can leverage their credits, right? But at some point, their balance sheets are going to get

03:26stretched, too, because capital is not infinite. And so, at that point, you're going to have to have multiple sources,

03:33and frankly, the businesses sitting in this room today are going to be a big participant through the assets, long-term assets,

03:40that they're managing in the industry. I think returns are likely to be softened, right? Today,

03:45everybody's excited because the returns look more like private equity than they look like infrastructure returns.

03:51But once we get to a more normalized environment where you're actually looking at the underlying credit,

03:57I think returns are going to come down and look more like your traditional infrastructure play.

04:02But when you look at infrastructure, really real estate overall, Milton, there's been this idea that

04:08the old sort of static nature of investment in real estate, that that's over, that what investors are

04:14looking for now has to be much more evolutionary and much more dynamic. What are you seeing?

04:18Look, I would agree. Real estate today is being built for purpose, as opposed to for location,

04:27which historically they've done. And so, I think today, everybody understands where the puck's going.

04:34They know where the demand is. And so, therefore, if you're going to build, you're going to build where

04:40you know there is demand and there's unlimited demand and unlikely to change given the data,

04:48the amount of data being generated and the need for power and the need for infrastructure.

04:54And regionally, AJ, where are you seeing? I mean, I know that in the past,

05:00Blackstone real estate has been heavily invested in the Sunbelt states. Is that still the area of growth?

05:06Well, we're tending to invest by asset class where we see the best demand supply balance. And if we think

05:14about, for example, these pillars of the reconstruction or investment in America, and when we look at data

05:21centers, you not only need to have land, but you need to have power from utilities or a direct connect

05:28to like a natural gas source of electricity. And so, where we're finding power today is in Texas and

05:36Arizona, Pennsylvania, which has 20% of all of America's natural gas, Iowa, Georgia, which by the

05:45way is a state that commissioned the two most recent nuclear reactors in America. And so, when you think

05:51about the data center business, you have to also think about where you have excess power to basically

05:57fuel these data centers. And that was Bloomberg's Romain Bostic from the case summit. Sources say

06:03he'll be back tomorrow, but he'll just have to tune in.

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