Partners Group Warns Europe Infrastructure Push Inflating Assets

(Bloomberg) — Europe’s quest for sovereignty in critical infrastructure like power grids and digital networks risks unsustainable asset-price growth in the sector as cash continues to pour in, according to one of Europe’s largest private equity firms.

“Investors need to be careful of building infrastructure that is too expensive or doesn’t have the demand without the stimulus,” Esther Peiner, head of infrastructure at Partners Group, said in an interview.

European countries including Germany, Italy, and the UK have pledged to invest more than €1 trillion ($1.2 trillion) combined in the coming years to modernize roads, railways and power grids, while also expanding digital networks and data centers. The push reflects growing concern over Russian aggression toward Ukraine, tension with the US over the role of NATO and trade, and rising competition with China.

Allocations to the asset class are projected to grow by about 20% over the next five years, driven by fund managers seeking to diversify and hedge against inflation as well as state actors, according to a recent survey by IFM Investors.

Italy’s state-owned investment arm CDP Equity and the European Investment Fund committed €50 million in May to the €200 million PIMCO European Data Centre Opportunity Fund. The vehicle is backing the development of data centers in markets including Madrid, Milan and Berlin as part of efforts to expand digital infrastructure across the continent.

State-driven investment is potentially focused more on “delivering a certain policy outcome irrespective of the underlying risk return,” Peiner said. “That ultimately means that, for us, a subsidized European proposition is probably not of interest. We currently see more attractive opportunities from a risk-return basis outside of the European market.”

Peiner has been with Partners Group for more than 10 years and was tapped to lead its infrastructure business in 2024.

The Zug, Switzerland-based firm manages about $185 billion of assets, including $35.7 billion in its infrastructure platform, and operates a direct investment business and a secondary strategy. Both institutional investors and wealthy individuals can invest in the infrastructure unit, the latter through a dedicated evergreen product.

The remarks add to warnings that Europe’s infrastructure push for the sake of strategic autonomy could backfire. A combination of heavy state spending and a push to build sovereign alternatives risks inflating an investment bubble driven artificial intelligence. Limiting access to global partners has also historically helped keep costs down and projects commercially viable.

Attempts to build European alternatives to US technology would risk bringing higher prices on the continent and could further alienate Washington, network operator Ericsson AB Chief Executive Officer Borje Erik Ekholm said at the World Economic Forum in Davos, calling the idea of European sovereignty from US partners “dangerous.”

Data Centers

Data center investments especially are also seen at risk of an overbuild scenario where related infrastructure grows faster than demand can absorb it as technology advancements may render some of the facilities useless long before they’re completed. Deutsche Bank AG said last week it is managing its exposure to the assets carefully.

“Data centers are an important part of our portfolio, but we also don’t want to create too much of an overweight,” Peiner said, adding that facilities held within the firm’s portfolio currently cater to “very significant” demand.

Partners Group has been gauging interest in atNorth Holding, a data center operator that marked its first such investment in Europe, Bloomberg reported. Since 2021, the firm has invested more than about $5 billion in data centers worldwide, with other assets spanning North America, Asia-Pacific and Australia.

Decisions to potentially sell any of Partners Group’s data center assets are currently driven by whether original value creation plans have been achieved and if more funding is needed for further development, rather than any perceived risks to the sector, Peiner said.

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