Infrastructure is one sector that may benefit from the upheaval in geopolitics.
Current discussions about geopolitics among allocators center largely around risk — how it’s shifting market narratives and driving trends like reshoring, deglobalization, and security concerns. Yet these challenges are also creating opportunities, particularly in infrastructure, according to Mark Perry, Wilshire’s head of alternatives manager research.
“We’re spending a lot of our time in the infrastructure market today,” Perry told Institutional Investor. “We think it’s a really interesting market in transition, and these same risks to the equity markets are tailwinds to infrastructure.” Perry cited reshoring and energy security as factors that are driving capital flows into the infrastructure market all “on the back of some of the geopolitical concerns that we’re seeing.”
When evaluating the impact on private assets, Perry emphasized that while high-frequency news dominates the landscape, the focus should be on filtering out the noise to identify meaningful investment implications.“What we’re looking for in geopolitics are changes in secular trends,” he said.
Perry highlighted deglobalization, energy availability, and technology security as key secular trends being reinforced by current geopolitical discussions.
“As we look across sectors that may benefit from this new secular trend — aerospace and defense, infrastructure, energy security, certain parts of telecom — that may be in line to benefit from some of this reshoring and deglobalization trend that we’re seeing.”
Geopolitics is one of four megatrends that Wilshire has identified as having the most significant impact on private assets next year — the other being artificial intelligence (AI), interest rates and inflation, and energy transition.
AI — “A Sustainable Force on Our Markets”
The potential of AI is a major focus for Wilshire, with its use cases being both obvious and abundant. “We really see this as being a sustainable force on our markets,” Perry said. While the technology is still new enough that its long-term, secular impacts on private markets are being assessed, the effects are expected “to be considerable.”
AI is already making its presence felt across a range of asset classes. In venture capital, there’s significant activity around funding the next generation of AI, from large language models to applications built on those models. In the buyout market, companies are integrating AI into their workflows to boost efficiency and margins. It’s also emerging in real estate, particularly in data centers, where capital is flowing heavily into this segment. Infrastructure and energy are also key areas of interest.
“Everything in the AI value chain right now is getting a lot of attention in the private markets, and it’s getting a lot of our attention,” Perry said. “Up and down the chain — power storage, power transmission into the data center, and then into the software directly — we’re looking at opportunities there across the board.”
Diversification and Investible Opportunities
When allocators express concerns about how geopolitics might impact liquidity, global investing, and the U.S.’s standing in the global investment community, Perry emphasizes the importance of diversification as the primary strategy to protect portfolios. “Diversification is the tool that we have to best combat geopolitical uncertainty,” he said. Wilshire’s global platform, with a physical presence on three continents, allows the firm to build portfolios that incorporate local perspectives into sourcing, underwriting, and due diligence.
“We want to be diversified geographically, across asset classes, and across vintage years,” Perry added, noting that this approach is critical to navigate uncontrollable risks like geopolitics. “We don’t have a crystal ball, but we lean on tried-and-true diversification to help us out with any of the bumps along the way.”
Cutting through the geopolitical noise to identify the real signal is challenging. “Geopolitics is about globalization right now,” he said. Global supply chains are shrinking, with companies not only focused on the availability of products and components, but security as well. This has added an extra layer of complexity to the mapping of supply chains.
“On the margin, we’re starting to see things come back onshore,” Perry noted, a trend evident not only in the U.S. but also in Europe and Asia. “We think that’s the investable opportunity — U.S. manufacturing, U.S. energy security, and secure supply chains.”
