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Why Private Infrastructure in 2026: Investing Through Volatility and a Rapidly Evolving World

May 2026
6 minute read

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As Raj Agrawal notes in his 2026 Infrastructure Outlook, we are operating in a world of more persistent inflation, greater macro and geopolitical volatility, and rapid technological change. In this Regime Change environment, stocks and bonds can come under pressure simultaneously, rendering 60/40 allocations less effective at delivering returns and “shock absorption” amidst volatility. Greater market concentration, combined with higher financing costs, is likely to put pressure on public market returns.

We think the environment we are describing calls for diversification outside of public markets, as well as exposure to durable global investment themes. It also favors strategies that can deliver both portfolio resilience and attractive returns, particularly those aligned with a hard asset, low-obsolescence (“HALO”) framework: businesses with collateral-backed cash flows, providing critical services in a rapidly evolving world, and meaningful upside potential.

We believe private infrastructure can deliver these attributes and warrants increased investor attention. The asset class captures structural growth, capital preservation, and ownership of assets with relatively low risk of obsolescence, even in the face of AI disruption.

Infrastructure as a Foundation for a Multi-Decade Investment Cycle

Amid elevated geopolitical and economic uncertainty, demand for Infrastructure remains notably durable. In our view, the world is entering a prolonged investment cycle driven by digitalization, electrification as well as an increasing need for energy security and supply-chain reconfiguration. Assets tied to power, data, energy, logistics, and connectivity are no longer mere economic enablers, but rather increasingly strategic in nature, shaping competitiveness and resilience at both the corporate and national level. Importantly, many of these assets benefit from relatively low obsolescence risk, as they underpin the essential building blocks of economies.

What Is Driving the Surge in Demand for Infrastructure?

Growth in cloud computing, data consumption, and AI is driving a step change in computing requirements, with global contracted data center capacity projected to increase by more than 200% from 2025 to 2035, according to Data Center Dynamics. At the same time, the International Energy Agency estimates that global electricity demand could rise by at least 40% over the next decade, which would require substantial incremental investment in generation, transmission, distribution, and grid resiliency.

Meeting these demands will require substantial investment: global infrastructure needs are projected to exceed $106 trillion by 2040.¹ With public balance sheets constrained by higher debt burdens, aging populations, and rising security commitments, private capital is likely to play a central role in closing this gap. Through all of this, persistent geopolitical and macro volatility are shifting the investment landscape.

Taken together, sustained demand, paired with an aging asset base in need of replacement, underpins what we view as a compelling long-term investment opportunity in Infrastructure.

EXHIBIT 1: Demand for Data and Power Is Durable Across Economic Conditions

Global Data Generated Annually (Zettabytes)

Bar chart showing global data generation rising sharply from near zero in 2010 to around 180 zettabytes by 2025, highlighting accelerating digital demand. — Data as of December 2025. Source: Statista, Bernard Marr & Company.

EXHIBIT 2: Demand for Data and Power Is Durable Across Economic Conditions

Global Energy Consumption (quad BTU)

Line chart showing global energy consumption steadily increasing from about 600 quadrillion BTU in 2020 to roughly 850 by 2050, indicating sustained long-term demand growth. — Data as of 2023. Source: EIA International Energy Outlook 2023.

Repositioning Portfolios for Regime Change: The Role of Private Infrastructure

As noted above, the current global backdrop represents a step change from prior investment cycles, defined by structurally higher inflation and interest rates, heightened geopolitical tension, and a more uneven global expansion with greater dispersion of growth rates across regions and sectors. Recent market action reinforces that message, as persistent geopolitical tension drives an inflation risk premium, credit is normalizing from exceptionally easy conditions, and investors are rapidly re-underwriting entire industries and expressing views on where AI is additive versus disruptive.

These shifts are particularly important for portfolio construction. Stocks and bonds are increasingly moving together, which reduces the reliability of traditional diversification and limits the ability of government bonds to act as consistent shock absorbers during periods of stress. Said differently, the efficient frontier is flatter, the margin for error is smaller, and investors need to be more deliberate about asset allocation and where they take risk.

Against this backdrop, we believe portfolios can benefit from incorporating more diversified return streams available in private markets, particularly those anchored in collateral-based cash flows, where value is underpinned by hard assets and revenues are closely tied to essential services and often have strong contractual predictability.

In a world where traditional diversification is less reliable and inflation is stickier, allocators are increasingly focused on assets that can preserve capital during periods of stress while still compounding over time. Private infrastructure has consistently exhibited these characteristics (Exhibit 3). Its exposure to essential assets (those that provide critical, everyday services including power, transport, logistics, communications, and water, for example), often supported by contractual revenues and long-duration investment horizons, has historically contributed to more stable performance through downturns and inflationary episodes.

At the same time, the upside is not just defensive: secular tailwinds and the ongoing need for investment in power, energy, logistics, and digital infrastructure have supported attractive risk-adjusted returns across cycles.

EXHIBIT 3: Strong Historical Track Record of Attractive Risk-Adjusted Returns

Asset Class Annual Return and Standard Deviation (2005-2024)

Bar and dot chart comparing asset class returns, volatility, and Sharpe ratios, showing private equity and infrastructure delivering strong risk-adjusted performance relative to public markets. — Data as of December 31, 2024. Source: Bloomberg, BofA, Burgiss, Cambridge, KKR Global Macro & Asset Allocation analysis. No representation is made that the trends depicted or described above will continue. Target returns are hypothetical in nature and are shown for illustrative, informational purposes only. Past performance does not guarantee future results. Indexes are unmanaged. It is not possible to invest directly in an index. Private Real Estate modeled using the Burgiss Real Estate Index. Private Infrastructure modeled using the Burgiss Global Infrastructure Index. Private Equity modeled using the Cambridge Associates Private Equity Index. Direct Lending modeled using Cliffwater Direct Lending Index. Listed Infrastructure modeled using Dow Jones Global Infrastructure Total Return Index. Global Bonds modeled using Bloomberg Global Agg Total Return USD Index. Global Equities modeled using MSCI ACWI Net Return USD Index (includes dividends). Note: Volatility is proxied by standard deviation, a statistical measure of how widely values, such as investment returns, vary around their mean over a specified period.

In our view, Infrastructure’s resilience, essential nature, and durable demand, combined with constrained public funding, create a compelling long-term investment runway. Together, these factors position the asset class to be among the stronger performers over the next two decades for long-term allocators (Exhibit 4).

EXHIBIT 4: We Expect Private Infrastructure to Be Among the Best-Performing Asset Classes in Both the Short and Long Term

KKR's Expected Returns, 5 and 20 Year Horizons

Chart of expected returns across asset classes over 5- and 20-year horizons, showing private equity and private infrastructure leading with the highest projected returns relative to public markets and fixed income. — Expected Returns are hypothetical estimates based upon historical nominal returns and are provided for illustrative purposes only. They are in no way indicative of any investment strategy or product offered by KKR. Expected Returns are calculated using probability-weighted average outcomes and are susceptible to uncertainty and error. All returns are compounded annually. Source: Bloomberg, BofA, Burgiss, Cambridge, KKR Global Macro & Asset Allocation analysis as of 2Q25; "Last 5 Years" reflects returns from October 31, 2020 to October 31, 2025 for consistency across asset classes. No representation is made that the trends depicted or described above will continue. Target returns are hypothetical in nature and are shown for illustrative, informational purposes only. Past performance does not guarantee future results. Indexes are unmanaged. It is not possible to invest directly in an index. Private Real Estate modeled using the Burgiss Global Real Estate Index. Private Infrastructure modeled using the Burgiss Global Infrastructure Index. Private Equity modeled using the Cambridge Associates Global Private Equity Index. Direct Lending modeled using Cliffwater Direct Lending Index. U.S Government Bonds modeled using the Bloomberg U.S. Government Total Return Value Unhedged USD Index. U.S. Aggregate modeled using the Bloomberg US Agg Total Return Value Unhedged USD Index. U.S. Small Caps modeled using the S&P Small Cap 600 Total Return Index. U.S. Large Caps modeled using the S&P 500 Total Return Index. U.S High Yield modeled using the Bloomberg US Corporate High Yield Total Return Index Value Unhedged USD Index. Loans modeled using the S&P UBS Leveraged Loan Index Total Return Index Level Unhedged USD Index. Global Equity modeled using the MSCI ACWI Net Total Return USD Index. Europe Equity modeled using the STOXX Europe 600 Net Total Return USD Index. Japan Equity modeled using the MSCI Japan Net Total Return USD Index.

How Does Private Infrastructure Provide HALO Characteristics in an Inflationary, Volatile, and Rapidly Evolving Environment?

Private infrastructure offers a differentiated mix of both growth and defensive characteristics. We think this combination is particularly valuable in an environment where we are seeing rapid technological change, inflation is more persistent and bouts of volatility more frequent. This reinforces the appeal of what some market participants call “HALO” exposures: heavy, asset-backed investments with low obsolescence risk. Infrastructure sits squarely within this framework.

A key component of infrastructure’s HALO characteristics is its inherently low obsolescence risk. Unlike many sectors exposed to rapid technological disruption, infrastructure assets provide the essential services, such as power and data transmission, which remain critical regardless of how underlying technologies evolve. While innovation may occur at the application layer, demand for the physical backbone enabling that innovation continues to grow. This combination helps anchor returns in durable, asset-backed cash flows, reducing the risk of obsolescence even in a rapidly changing environment.

Further, while inflation has moderated in some areas recently (e.g., shelter inflation), we do not expect overall CPI to return sustainably to the benign pre-pandemic run-rate (Exhibit 5). Recent energy price pressures have only underscored this dynamic. Historically, Infrastructure has delivered attractive outcomes across both low- and higher-inflation environments, though for different reasons (Exhibit 6).

In lower inflation periods, returns were often supported by stable cash flows, organic growth and favorable financing conditions. In higher inflation and higher volatility periods, the ballast comes more from contractual revenue frameworks, CPI escalators, and the essential nature of the underlying assets, which can help protect real cash flows and dampen drawdowns during periods of stress. Taken together, this ability to perform across regimes reinforces Infrastructure’s HALO-like characteristics (Exhibit 7).

EXHIBIT 5: Regime Change for Inflation Often Leads to Volatility Along the Way. We Expect Core CPI to Settle around a 2.5% Run-Rate, Above the 1.6% Average Seen From 2014–2019

U.S. CPI Year-Over-Year

EXHIBIT 6: Private Infrastructure Has Delivered Consistent Performance Across Inflation Regimes with Relatively Low Volatility

Historical Returns and Volatility Across Inflation Regimes

Bar chart comparing returns and volatility across inflation regimes, showing equities and infrastructure delivering higher returns but greater volatility in high-inflation periods, while bonds are more stable with lower returns. — High Inflation is defined as annual CPI > 2.5% and Low Inflation is defined as annual CPI < 2.5%. Returns and volatility modeled using annual total returns from 1981 to 2024 for the S&P 500, from 2005 to 2024 for Private Infrastructure, from 1974 to 2024 for Bonds. Assumes continuous rebalancing of the portfolios. U.S. equities modeled using the S&P 500 Index. US Bonds modeled using a mix of 50% U.S. T-Bonds and 50% Investment Grade Corp. Private Infrastructure modeled using the Burgiss Infrastructure Index. Listed Infrastructure modeled using Dow Jones Global Infrastructure Total Return Index. Source: Burgiss, Bloomberg, NCREIF, KKR Global Macro & Asset Allocation analysis. Past performance does not guarantee future results. Indexes are unmanaged. Note: Volatility is proxied by standard deviation, a statistical measure of how widely values, such as investment returns, vary around their mean over a specified period.

EXHIBIT 7: Private Infrastructure Remains Resilient, Even During Market Downturns

Bar chart showing average returns during equity downturns, with global equities sharply negative while bonds and private infrastructure remain positive and listed infrastructure declines less severely. — Data from 1998 to 2024. Equity down years are defined as periods of negative public equity returns, with average returns calculated for each asset class during those periods. Average returns for each asset classes are calculated during those periods. Global Equities proxied using MSCI World Index, Global Bonds proxied using Bloomberg Global Aggregate Index, Listed Infrastructure proxied using DJ Global Infrastructure Index from 2003 onwards, Private Infrastructure is proxied using Burgiss Global Infrastructure Index from 2005 onwards. Source: Bloomberg, Burgiss, KKR Global Macro and Asset Allocation analysis. Past performance does not guarantee future results. Indexes are unmanaged.

This balance is becoming even more relevant as investors navigate uncertainty tied to technological disruption. As AI investment continues to scale, we expect sustained capital deployment across power, connectivity, and data-related assets. In this context, infrastructure provides exposure to the same structural drivers but with a fundamentally different risk profile. Assets such as data centers, and power infrastructure offer returns anchored in long-duration, contracted cash flows rather than dependent on valuation expansion or adoption cycles.

In our view, infrastructure can capture transformative growth themes while embedding capital preservation. Its return drivers, rooted in real assets and essential services, differ from those of most equities and bonds, which has historically resulted in low-to-moderate correlations with both equities and bonds. As such, infrastructure can enhance portfolio resilience and should increasingly be viewed as a core building block of portfolios, not just a diversifier (Exhibit 8).

EXHIBIT 8: Select Asset Class Correlations: Private Infrastructure Provides Diversification Across Major Asset Classes

Correlation matrix showing relationships across asset classes, highlighting that private infrastructure has moderate correlations with equities and credit but offers diversification benefits relative to traditional assets. — Private asset classes examined unsmoothed returns. Correlation measures the degree to which two variables move together. The strength of this relationship varies from a level of 1.0, which indicates a perfect relationship, to -1.0, which indicates a perfectly opposite relationship. A correlation above 0.75 would be considered a strong relationship, and a correlation of 0 would indicate no relationship at all. It is important to remember that correlation does not necessarily describe a causal relationship. Data as of December 31, 2024. Source: Bloomberg, BofA, Burgiss, Cambridge Associates, KKR Global Macro & Asset Allocation analysis. Private Real Estate modeled using the Burgiss Real Estate Index. Private Infrastructure modeled using the Burgiss Global Infrastructure Index. Private Equity modeled using the Cambridge Associates Private Equity Index. Direct Lending modeled using Cliffwater Direct Lending Index. Listed Infrastructure modeled using Dow Jones Global Infrastructure Total Return Index. Global Agg modeled using Bloomberg Global Agg Total Return USD Index. US Agg modeled using Bloomberg US Agg Total Return Unhedged.USD Index. US Govt modeled using Bloomberg US Government Total Return Unhedged USD Index. US Credit modeled using Bloomberg US Credit Total Return Unhedged Index. Global Equity modeled using MSCI ACWI Net Return USD Index (includes dividends). Indexes are unmanaged.

The Importance of Manager Selection in Private Infrastructure

Despite its defensive characteristics, infrastructure is not immune to dispersion. Outcomes can vary meaningfully across managers, driven by differences in asset selection, structuring, operational execution, and value-creation capability (Exhibit 9). In fact, the benefit of avoiding bottom-quartile managers in infrastructure can be nearly as significant as it is in private equity, an important reminder that resilience at the asset-class level does not automatically translate into resilience at the portfolio level. As such, disciplined manager selection and underwriting remain essential.

EXHIBIT 9: Manager Selection in Private Markets

Historical Private Market Manager Dispersion, Impact of Avoiding Bottom Quartile, Annualized

Bar chart showing performance dispersion in private markets, indicating that avoiding bottom-quartile managers can add several percentage points of annual return, especially in private equity and infrastructure. — Based on global benchmarks and average IRRs of 2017-2021 vintage years. Top Quartile vs. Median is the average difference between the top quartile IRR and median IRR. Impact of Avoiding Bottom Quartile is the difference between the average pooled equally weighted IRR for top three quartiles and the broad universe of managers. Direct Lending is represented by Private Debt: Senior. Source: Cambridge Associates, KKR Global Macro & Asset Allocation analysis.

Notwithstanding all the strong attributes outlined above, investing in Private Infrastructure as an asset class is not without risk. At a broad level, KKR’s approach to investing is risk-based, focusing on assets with secured inputs (e.g., power, labor), conservative capital structures supported by contractual protections, investment in jurisdictions with strong rule of law, and partnerships with best-in-class operators.

Conclusion

Against this backdrop, private infrastructure’s role in portfolios is evolving into that of a core building block. In an environment characterized by persistent inflation, tighter fiscal conditions, and rising geopolitical fragmentation, investors are increasingly prioritizing assets that offer stability, real yield, and exposure to structural growth.

Ultimately, infrastructure exemplifies a HALO investment: offering high potential upside while intentionally managing downside risk through asset-backed, durable cash flows.

Infrastructure sits at the intersection of durable demand, contracted or regulated cash flows that support inflation resilience, and differentiated return drivers that can enhance portfolio stability. At the same time, it offers exposure to the transformative forces reshaping the global economy including digitalization, electrification, and energy security, but through collateral-backed, long-duration assets rather than speculative bets. As such, we think private infrastructure should be viewed as a core portfolio building block, with the potential to be among the stronger-performing asset classes over both the near and long term.

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REFERENCES

¹ Source: McKinsey & Company.