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

Host: The Compound (Michael Batnick & Ben Carlson)
Guest: Scott Littman, Managing Director and Portfolio Manager at GCM Grosvenor
Date: October 13, 2025

Episode Overview

This episode features a deep-dive conversation with Scott Littman on infrastructure funds: what they are, how they work, where opportunities and risks lie, and why this asset class is increasingly on the radar of both institutional and retail investors. The hosts probe the ins and outs of investing in infrastructure assets—from toll roads and airports to the new frontier of data centers—and explore how energy demand, private funding, and cash flow certainty shape the landscape.

Key Discussion Points & Insights

1. Infrastructure as an Asset Class

• [00:37] Infrastructure encompasses a range of assets beyond the usual roads and bridges, including airports, data centers, energy plants, and digital infrastructure.
• The sector is becoming a "new asset class" for many investors, especially retail and advisors who've largely overlooked it in favor of more traditional investments.

2. Data Centers & Energy Demand

• [03:11] Scott Littman: "We're in the first two innings, so we got a long way to go. It's an exciting time, but as with any megatrend, there are pitfalls."
• The explosive growth in data centers—particularly driven by AI—creates a massive, ongoing need for both physical infrastructure and incremental power supply.
• [03:53] Demand for power had been flat for two decades, but data centers have caused that to ramp up significantly.

3. Types of Infrastructure Investments and Their Risks

• [05:25] Scott Littman: Differentiates between stable, long-term cash flow investments (like contracting with hyperscalers for data centers for 15-20 years) and riskier ventures (speculative builds with uncertain tenants).
• Focus is on certainty of cash flows; investments with major, long-term contracts are less risky than speculative builds.

4. Energy vs Digital Infrastructure

• [07:16] Energy infrastructure includes power plants (gas, solar, wind, hydro, etc.), battery storage, and evolving technologies like hydrogen and geothermal.
• Digital infrastructure is made up of:
  • Data centers
  • Fiber networks (the "highways" of data)
  • Wireless towers
• Increasingly, power can be contracted or self-supplied for data centers, sometimes bypassing the grid entirely.

5. Growth Outlook

• [10:04] Scott Littman: "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."
• From now through at least 2030, data center demand for power is expected to quadruple. Data centers may double their share of national energy use from 5% to over 10%.

6. Accessing Infrastructure as an Investor

• [11:32] Public options: Infrastructure ETFs, utility stocks (like Constellation Energy), and MLPs.
• [12:22] Many data centers are accessed through REITs, but private vehicles remain the dominant route for direct infrastructure exposure, especially for high-net-worth and institutional investors.

7. Leverage in Infrastructure Investing

• [12:59] Leverage is standard in infrastructure, typically applied at the asset level, allowing greater returns when cash flows are stable (e.g., a Microsoft-backed data center contract).

8. Infrastructure vs Other Alternatives

• [14:16] Infrastructure investment is maturing for private capital; Australia and Canada are early adopters due to their energy sectors and pension environments.
• Increased volatility in traditional real estate is pushing investors toward the relative stability and attractive returns of infrastructure.

9. Returns: Income Play or Capital Appreciation?

• [17:06] Scott Littman: "Historically infrastructure has been viewed as an income play, as a low return, high yield income play... That's not exactly the way that we play the space."
• Today, the best opportunities offer a blended return: yield plus growth, moving beyond just fixed-income replacement.

10. Exiting Infrastructure Investments

• [18:04] Exits vary:
  • Long-term income streams (eg. holding airport stakes for steady yield)
  • Building out and system improvements, then exiting post-construction or ramp to lower cost of capital buyers
• Scarcity (like limited airport gates) drives sticky revenues and stable returns.

11. How Infrastructure Funds Source and Underwrite Deals

• [23:05] Fund approach: Some are ‘single artist albums’ (all deals from one sponsor), while others (like GCM Grosvenor) offer a ‘mixtape’—a diversified suite of the best deals across sponsors, sectors, and roles.
• [24:45] Deals come via reputation, capital provision, and willingness to partner—phone is “always ringing” due to huge capital needs in infra projects.
• [25:50] Underwriting is both quantitative and qualitative, involving specialists who formerly invested for control and who can assess cash flow, asset quality, and sponsor alignment.

12. Red Flags in Infrastructure Investing

• [27:30] Top concerns: Lack of cash flow certainty, speculative “greenfield” (new-build) projects, aggressive or unusual growth assumptions, and outlier pricing.
• Successful underwriting is as much about spotting "obvious" mismatches and overly optimistic projections as picking winners.

Notable Quotes & Memorable Moments

• On the nascent state of data center investment:
  Scott Littman [03:11]:
  "We're in the first two innings, so we got a long way to go. It's an exciting time, but as with any megatrend, there are pitfalls."

• On how infrastructure funds can operate like a ‘greatest hits mixtape’:
  Scott Littman [24:02]:
  "Rather than listen to 30 songs by the same artist, I want the top two songs by the top 20 artists that I like."

• On the risk-return profile:
  Scott Littman [17:06]:
  "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."

• On deal flow in infrastructure:
  Scott Littman [24:45]:
  "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 entrants..."

• On diligence and investor caution:
  Michael Batnick [29:55]:
  "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, you know, used to doing on a day to day basis."

Timestamps for Important Segments

• Asset class overview and contemporary relevance: [00:43] - [02:24]
• Explosive growth and need for data centers: [03:11] - [04:53]
• Data centers vs other real estate, risk distinctions: [05:25] - [06:52]
• Energy & digital infrastructure breakdown: [07:16] - [09:55]
• Growth outlook through 2030+: [10:04] - [11:13]
• How to invest in infrastructure—public and private options: [11:32] - [12:53]
• Leverage in infrastructure: [12:59]
• Comparison to other alternative investments: [14:16] - [16:57]
• Yield vs appreciation: [17:06]
• Exit strategies: [18:04]
• Deal sourcing—the "mixtape" analogy: [23:05] - [24:40]
• Underwriting process: [25:50]
• Evaluating and skimming out poor deals: [27:21] - [29:22]

Summary Takeaways

• Infrastructure investing is no longer the preserve of governments and pension funds—retail access is expanding, though with complex risks.
• The rise of AI and digital transformation is turbocharging demand for data centers, making power and energy infrastructure a growth market.
• Infrastructure funds can deliver a mix of income and growth with relatively stable, predictable cash flows—if investments are well-underwritten and contracts are robust.
• The best funds seek diversification not just across assets but also sponsors, sectors, and deal structures.
• As with all alternatives, deep diligence is vital—investors must be wary of deals with aggressive assumptions, speculative projects, or unclear cash flow prospects.

For more information on infrastructure investing and the Scion Grosvenor Infrastructure Fund, listeners are directed to the Scion Investments and GCM Grosvenor websites.

This summary is designed to give a full, clear sense of the episode’s key insights, structure, and tone for listeners who want the vital takeaways—minus the small talk and sponsors.