While infrastructure opportunities are underpinned by fiscal constraints, ageing populations, the energy transition and the revolution of artificial intelligence (AI)-driven data centres, private credit is expected to continue to benefit by loan migration from banks to “longer-dated liability investors”, BlackRock noted.
According to the fund manager, private debt – which currently makes up just 10 per cent of the US$16.4 trillion alternative investment universe – has “plenty of room for growth” and will be additionally helped by a number of tailwinds.
In its 2025 Private Markets Outlook, BlackRock highlighted that this segment has the potential to become more global, with Europe and Asia-Pacific regions, traditionally reliant on bank financing, poised for growth. However, investors seeking opportunities in these markets will need regional expertise to navigate them.
Second, BlackRock expects the definition of private debt to evolve, driven by increased participation in asset-backed finance, which includes debt related to consumer spending, hard assets, as well as commercial financing and intellectual property.
According to data from Oliver Wyman, asset-backed finance is valued at US$5.5 trillion in the US alone.
“The current market share of asset-backed finance held by private lenders is estimated at roughly 5 per cent today, and private lenders are poised to fill in the gaps left by banks, as they have within corporate credit and real estate,” BlackRock said in its outlook.
“We expect this trend to accelerate in 2025, alongside growing appetite for such private-debt investments globally, most notably from US insurers.”
Additionally, previously executed in the public markets, especially deals “prohibitively large for most middle-market companies”, are now shifting to private debt.
BlackRock also expects private debt to see greater performance dispersion, requiring more granular credit selection.
“One of the main themes we see persisting into 2025 is dispersion, but not widespread market disruption,” it said, noting that deepening dispersion applies across many asset classes, and private debt is “no exception”.
BlackRock added that corporate borrowers in the US private debt market will face higher cost of capital due to the Fed’s anticipated monetary policy normalisation, rather than easing.
However, overall, corporate borrowers in private debt markets have demonstrated resilience, albeit unevenly.
Infrastructure
Private infrastructure opportunities are significant, given the substantial investment required to meet the growing AI-driven demand for data centres and the complexity of integrating power and data centre development capabilities, BlackRock believes.
The surge in demand for data centres, which are part of critical infrastructure and host the servers responsible for AI training, has already been massive and remains now amplified by AI adoption.
BlackRock estimates that global efforts will require over 150 gigawatt of incremental capacity by 2030.
“As a result, total capex for data centre development is expected to exceed US$1.5 trillion over the same period,” it said.
Moreover, the race to develop next-generation AI technology, which is constantly accelerating, will also require investments in power infrastructure, a key component of data centre operations.
Data centre housing graphics processing units utilised for AI applications require often 10 to 15 times more power than traditional cloud deployments.
“As a result, the need for additional power generation and transmission infrastructure will only intensify,” BlackRock said.
The growing demand has led to a higher number of partnerships between data centre operators and power producers, with a focus on exploring “behind-the-metre” solutions.
These include generating their own off-grid power through solar, wind, natural gas, and even nuclear energy.
“Given the massive investment required to meet growing AI data centre demand and the complexity of integrating power and data centre development capabilities, we believe this is an opportunity set ripe for experienced infrastructure investors across digital infrastructure and energy,” BlackRock said.
