The Infrastructure Behind the Future with Tyler Rosenlicht Artwork

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The Infrastructure Behind the Future with Tyler Rosenlicht

July 08, 2026 • Philip Chao • Episode 40

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What powers the economy of the future?

In Episode 40 of the Tao of Chao Podcast, Philip Chao welcomes Tyler Rosenlicht for a conversation about infrastructure, energy, commodities, and the long-term trends shaping the global economy.

As artificial intelligence, electrification, and rising global demand increase the need for reliable infrastructure, Tyler explains why investors should look beyond technology itself and consider the essential assets that support modern economies.

Key insights include:

Why infrastructure is more than roads and bridges
How real assets can improve portfolio diversification
The relationship between inflation and infrastructure investing
Why electricity demand is entering a new growth cycle
How AI is reshaping infrastructure and energy needs

This episode explores how infrastructure, real assets, and energy may play an increasingly important role in tomorrow's economy.

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Philip Chao
Website: https://philipchao.us
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We're in the developed world, and we have a very, I think, developed world mindset. You know, we consume on average seven units of energy per person per year. There's a billion of us consuming seven. We want to consume six in the next decade per person. We want to get more energy efficient. I think we can get there right. We have a lot of technologies that are going to make us more energy efficient, and we 1 billion people are going to go from 7 to 6. Over time, the developing world has 3 billion people. Right now. They consume one unit of energy per person. They want to get to two. If they get to two, they're still 70% worse off than we are, and we think they're going to get there to. So as we get more energy efficient in the developed world, this sort of massive rising global middle class around the world is going to really start to increase their commodity intensity. Welcome to the Tao of Chao podcast, where we will try to find balance and provide a clearer path forward in this uncertain world. Tyler Rosen, senior vice president at Cohen and Steers, is a portfolio manager for global listed infrastructure and serves as the head of natural resource equities. He has 16 years of experience, and prior to joining the firm in 2012, he was an investment banking associate with Kyiv Breed and Woods and an investment banking analyst with Wachovia Securities. Tyler has a Bachelor of Arts from the University of Richmond and an MBA from Georgetown University. He is based in New York, and here is Tyler. Tyler. Thank you. Thank you for being my my guest today. I've been looking forward to this as a I don't want to say a hot topic, but it's certainly a very contemporary topic we're going to talk about. And you know it of course, that's what you do 24 over seven. If there are more than 24 hours a day, you will have done more than 24 hours thinking and talking and and investing in. I know you are the you had the natural resources equities I think. And you also certainly the manager in the global listed infrastructure. Those are fancy things and want to sort of dig into both of those. You almost can't go one day without thinking about AI. And then when you think about AI, you think about infrastructure. And when you think about infrastructure and you start thinking about all kinds of stuff. So before we do that, perhaps we should start the definition first. We tend to think we know what we in the not not you, not professionally in that space, but you know, the retail space. Think of infrastructure as something, I guess, real or whatever that means. Can you talk a little bit about what real asset means? Is there such thing as unreal asset and how does that correlate with infrastructure? Maybe that's how we can start our conversation. Yeah, it's a great place to start. And thanks so much for having me here this afternoon. Maybe I'll start at the very high level, which is sort of real assets broadly and sort of Cohen and Steers as a firm. And then we'll we'll dig into infrastructure, natural resource equities. So we're an asset manager. We manage about $100 billion focused on real assets and alternative income. And to us, real assets are things that help portfolio diversification and importantly, can perform really well in periods when stocks and bonds are both doing badly. So we think about real assets as being businesses that have good inflation. Beta can perform when inflation is surprising and accelerating and can help smooth portfolio returns over time. I mean, if you go back to 2022, for instance, equities were down 18%, fixed income was down 16%. Things like natural resources and commodities were up 10 to 15%. So great diversified with inflation hedging, inflation benefits and so forth. As we define real assets as a firm, it's sort of four primary legs of the stool. So it's REIT's commodities and then infrastructure and natural resource equities. And sort of I come from the part of the team that focuses on infrastructure and natural resource equities. So so we'll dig in a little bit more on those two infrastructure. To us are the businesses that own the assets, that provide essential service for economic growth and help make sure that sort of people can move, data can move, energy can be produced and so forth. So the things that we invest in are the four cute sectors. So infrastructure is cute. It's communications that's things like cell towers, data centers and satellites. It's utilities electric gas water and renewables. It's transportation infrastructure. So this is the movement of goods and people, airports, marine ports, toll roads, things like that. And then the is energy infrastructure. So just the pipeline storage, transportation part of the energy value chain at the core, we like infrastructure because they're high quality businesses with good inflation sensitivity and good growth, a lot more predictability than you get in broad equities. We think about infrastructure as being low volatility, downside protected equity returns generally as an asset class. And obviously across each of the parts of the subsector, we're seeing really great investment opportunities natural resource equities. So this is the companies that participate in the value chains of the commodity economy. So it's sort of the three primary parts of commodities are metals and mining energy and AG. And we can invest in anything from the producers to the processors to the companies that help sort of get the goods out of the ground and towards the end, customer natural resource equities we think of as being really good total return prospects, really good diversification. And we think of it as a lot of inflation beta. It's the stuff that's really going to perform very differently when interest rates and inflation are going up and stocks and bonds are going down. We think that this can perform a very uncorrelated return stream. So you mentioned the year that stocks and bonds went down and commodities or real assets went up. Why is there a not a higher correlation. Correlation being when something moves one direction closely correlated I mean they all move together. Why why do you feel that these, you know, infrastructure or commodities or real assets don't move in lockstep when they are very close to the economy, right? I mean, this is the basis of the economy. So can you help me to understand that a little bit? Yeah. Let's let's start with infrastructure. So so I'd pause it, you know, if you were worried about an inflationary environment, you would want to have a business that really exhibits four key characteristics, right. If inflation is accelerating, you want a business that has very good pricing power. You want a business that has very high margins. You want a business that has mostly fixed costs, not variable costs. And you want to have a business that has a good balance sheet with mostly fixed rate debt, because the presumption would be inflation is rising and so are interest rates. I mean, almost definitional infrastructure businesses tend to exhibit those characteristics. Now there's a spectrum for sure. But start with pricing power. You know utilities, they're a full pass through of costs. They have effectively perfect pricing power. Now regulation can change and surprise. But generally speaking these are less competitive industries with high barriers to entry. You know, it's really tough to disrupt things like the freight rails. There's only one airport in many places, so their ability to raise price commensurate with inflation is very good. The second is it's really expensive to build infrastructure, but once you have it, you can run it at pretty high margins. You know, you think about building an energy pipeline, for instance, very difficult to do, but they tend to run at, call it 75% cash flow margins once they're in service. So for every$100 of revenue, they're earning about $70 of operating profit, only $30 of costs. If you think about inflation, that allows you to absorb a lot more, hey, if you have a $70 of cost and only$30 of operating profit and your inflation is 10%, that can be a bigger problem. You know, you hear about what's going on in labor markets today and how variable costs are rising, and nine figure compensation numbers for Silicon Valley programmers and so forth. Now, generally speaking, maintaining infrastructure is more fixed costs in nature. It's kind of making sure the track is operating and making sure the pipelines are safe. And so tends to have a lot less variable costs than you get in other industries. And then the nice thing about today with infrastructure is its long term fixed rate debt. Post the financial crisis, these companies have really improved their capitalization and so forth. So that's why you get strong inflation data from from infrastructure as a subsector. I would also say generally speaking, infrastructure does well when the economy is doing well because as the economy is growing, the need to invest and take advantage of infrastructure is also accelerating. You're, generally speaking, when inflation is rising and interest rates are rising, it's because growth is pretty good. So you have this sort of nice dual thing of its positively exposed to economic growth and positive, positively exposed, at least in the medium and long term, to sort of this inflation impulse the natural resource equities. Is that even a little bit differently. I mean generally speaking inflation is going up. So our commodity prices and if commodity prices are rising, you know, the best in class operators of mines and oil field production and so forth. They're going to be positively benefiting from sort of rising prices. So you're just they benefit when things that hurt other companies and hurt and things that hurt the fixed income markets. And that's why we think about them as really good diversified. Yeah, that makes a lot of sense. So it does kind of rhyme with the economy. But it's not quite a a stock or a bond that's more sensitive. It will be sensitive interest rate which I'm going to come to in a moment. But but they say it has different behaviors that we say for sure and be more predictable behavior because there's things moving through the tube or the of the grid or things that everybody needs. I mean, it's basically yeah, the predictability, particularly for infrastructure is key. I mean, you think about it like if if inflation, if you're in like a stagflation world and then you're worried about consumption and inflation, I mean, a lot of sort of purchasing decisions can be deferred or delayed or canceled. Like I cannot buy that car. I cannot buy the next iPhone. You kind of have to pay the utility bill. Yeah, you might travel a little bit less, but if you're going to the airport, you've got to pay the airport surcharge. And so it tends to be a lot stickier, a lot more predictable, sort of the first things that you're you're forced to pay every month as opposed to the last, which we think can sort of make it a little bit more defensive and keep its volatility lower than broad equities. Let's talk a little bit about the infrastructure from the standpoint of roads and bridges and airports and that type of thing. I was in in China for the first time in January this year and it was spectacular. Buildings is unbelievable, right? It's probably even more modern than even many of the western country capitals I've ever been to. Certainly compared to New York City. I mean, I love New York City, don't get me wrong, but there is significant amount of infrastructure that needs to be invested in. And I'm talking about basic stuff. Train station, I mean, the new New York train station today, it's nothing like the one before, even though we all still have to wait in line and guess which gate we have to go to. That's a different story, but tell us a little bit about us. Had done its infrastructure back in the 50s and 60s and maybe maybe even into 70s. Not quite. And then it kind of slowed down because it was brand new and all that was wonderful, all the roads and so on. I think last year, year before last, there was one of the bridges in Baltimore or something got a collapse. Not not because it was wearing, wearing out. It was it collapsed because something hit it or what have you, and it became a big deal and take forever and so on. What do you what do you make of a very developed country like United States that needs a lot of infrastructure, either repair or just rebuild? I'm not hearing a lot of that. I'm hearing more about data centers, you know, networks and that type of thing. Talk to us a little bit about that. Is that happening as well? Yeah. I mean, having a good modern infrastructure we think is critical to quality of life and also economic growth. And so in the developing world, the conversation is sort of building new infrastructure for the first time. And we think that that's going to continue and be really important in the developed world. We need to modernize what we have. And we agree there's been a lot of deferred maintenance or underinvestment in the sort of traditional critical infrastructure, things like roads and tunnels and bridges and so forth. I forget the most recent grade, but the American Society of Civil Engineers always grades America's infrastructure. And it's it's always a failing grade. It's like a C minus or a D. Yeah. Now one of the challenges is a lot of the infrastructure that you just went through is primarily owned by local municipal governments or the federal government and so forth. And these are assets that have been financed primarily by government. There's other places around the world where sort of the private market has been invited in to be the owners, operators and facilitators of that investment. So things like airports in Spain are publicly traded, airports in Australia, the passenger rail system in Japan, those have moved away from the government and more towards private sector to owned, operate and invest in that stuff. In the US, we think that's going to happen, but we've thought that for a while and it's obviously taking a long time because if you want to move from government ownership to the private sector, which might be sort of good for many reasons, you're going to have to start paying tolls on the on the roads more frequently, and there's going to have to be a return that's rewarded to the investors who are taking the risk at sort of managing that. It does feel like we are getting closer and closer to that being a bigger theme in infrastructure, mainly because a lot of sort of government budgets are really stretched. You know, it's really hard to sort of raise the financing through taxes and so forth to compete with all the other, you know, things that the government wants to invest in. And so we're starting to hear a little bit more about private market participating more in things like owning rail, owning things like toll roads and sort of, you name it. But you know, that needs to happen. You know, we need to modernize our infrastructure here. We need to build it in the developing world. We need to come up with new commercial structures, new financial structures to make sure that the capital flows to to really make sure that we have what we need to make the economy grow the way that we want it to. So one of the things that lots of talk have gone on because of AI, and we will spend a little time on that almost, almost no conversation, get away without at least bringing that once. It's the electric grid of this country, which is also apparently in disarray or needs repair or need something. Where is this? Where is that at now? And is a utility company that is doing this right? And many of them are publicly owned or substantially publicly owned. Can you give us a little update on on where we are there and how does one invest in it? I assume just buy buy utility companies and they do a good job and talk a little bit about that, because I think that's really the foundation for the information age, the digital age. Everything has to go through the grid somehow. Yeah. This could this could take up the entire day if we just want to talk about utility. So I'll try to keep it somewhat brief. And then we can sort of dig where we really want to. So obviously, you know the grid has been an industrial sort of investment that's been evolving for 100 years or even more than that. And so there's constant evolution and investment in the grid. And we now have a bit more of a patchwork across the US. And there's some legacy generation and transmission lines and, and so forth. And sort of we've gotten to this point now where for the last really 15 years, from 2007 to 2020, there was no electricity demand growth in the US. Basically, economy was growing, but we were becoming a lot more electricity efficient, changing out light bulbs for LEDs and so forth. And so we did need to invest a lot in generation that has changed in a really big way. So we're seeing the US economy ask for significantly more electricity. About half of it is data centers. Obviously, that's the thing that folks are most focused on, but it's coming from other places to its electric vehicles. It's you name it, and now it's about, hey, let's get the grid that can be bigger, produce more energy, make it more modern, make it more efficient. And that's really important. And that's a seismic change. You're going from two decades of no growth to we think the electricity demand in the US is going to accelerate to 3 or 4% per year. That's very meaningful. And it's going to take a lot of investment to build this new stuff, make sure that it works with the the old stuff and try to make us a lot more efficient. Now, the ways that you can invest in that are sort of numerous. So the utilities are clearly the ones that are most directly affected by all this CapEx increase in electricity and electrification. Our view on utilities is pretty nuanced. If you just think about utility CapEx, generally speaking, it's you want the utility to spend more. If they spend more and the regulator allows them to earn a nice return, they can grow their earnings and investors are happy. What you forget in that, in that equation is the person or the people that pay the utility bill and pay for that CapEx is all of us. And so CapEx can mean rising bills and rising bills are not something that most people want, particularly in this day and age when affordability is a key concern. We're in a midyear election cycle, and we think that the sort of most important thing right now is inflation and affordability. So there are some utilities that we think are incredibly well positioned for this cycle. They have great regulators, they've got great balance sheets and they have some unique contractual structures or generation sources where data centers coming into their service territories is going to be really good for them. There are other utilities where they're not going to be able to make the investments. There's going to be more on data center development. The regulators are really going to push back. They're going to stunt the ability for those utilities to do well. So I would say on average, we're kind of worried about utilities because the affordability is going to win out over the investment opportunity. But the best positioned utilities, I'd say that top third of utilities we think are really, really well positioned. And we think they're going to kind of separate from the pack as they're able to execute their business plans. But downstream of that, you know, there's a lot of other places that this that this whole theme touches. So you can invest in utilities directly. You can invest in the companies that are what we call engineering and construction, the outsourced businesses that actually build the infrastructure, put in the transmission lines, lay the pipelines. We think natural gas generation is going to continue to accelerate, so you can invest in gas producers and gas pipelines. We think nuclear is about to undergo a big renaissance. So you can invest in that entire value chain. If you think about electricity and electrification, our needs for copper and aluminum and other critical minerals are going to rise. So it's going to also leak down into the material space. So there's lots of ways that data center AI CapEx is affecting markets. And a lot of it does filter into both our infrastructure portfolios and our natural resources ones. So when you think about all that, there is this you already touching on it, real assets. Sometimes people think of it as commodities. And I'm not talking about necessary agricultural will come to that in a second because of the Iran war and all that. In the moment I'm talking about metals and that type of thing, even cement. I mean, if you're going to build build any infrastructure you need, you need cement in many, many cases, roads and buildings and so on. The last commodity supercycle, I think we touched on that when we spoke last time very briefly, was was two years after the opening of China or got accepted into WTO, became a member, and it had a ten year run also. And then at the end of that, that was that. Many people. Of course, we only learned from the last experience thinking, if they're only if China will come back and do that over again, which China will not be able to not need to build more highways per se. But from all this building across the world on infrastructure, from data center to develop market, which need to, we talked about, fix their existing infrastructure to new countries who need to build infrastructure. The build and road initiative, you know, all that type of stuff. Seems like there is a bit of a pressure on commodity prices today, not a super cycle type of pressure. But then maybe I just don't understand the word super cycle. It may have different, maybe have a different meaning that I think. Can you talk a little bit about the give and take of that supply demand? The thing that came to mind since Mr. Trump became president is this rare earth, which we all kind of understood, but rare earth is only one sliver of the whole ecosystem. But forget geopolitics for a moment. Just sort of think in general terms. How do you think about where we are from a commodity standpoint in terms of pricing going going forward? Yeah. So there so one thing as a reminder. So on the infrastructure side, we don't invest in businesses that produce commodities. We want the low volatility predictability. But in the natural resources side that's kind of what we're in the business of doing is predicting commodity prices and then finding the best equities to reflect those commodity views. Is it a super cycle? What I would say is there are three very strong forces that would, we think point towards commodities moving materially higher, even from here. If someone else wants to call that a supercycle, I wouldn't necessarily fight back. But let's just talk about those sort of three competing forces. Yeah, the first one would be on the supply side. So commodities are notoriously cyclical, right. The cure for low prices is low prices. The cure for high prices is high prices. So we had a big boom market, as you noted in commodities from call it 2001 to 2007, lots of investment in supply, lots of investment and capacity, excess sort of capital going into the industry. And these are cyclical. And that sort of washed out really from 2008 to 2020. And you saw sort of the high prices of oh seven lead to low prices of sort of the 2010 to 2020 period. We think it's really challenging now to increase the supply of things quickly. And so you've seen or grades get worse in mining. And we've drilled the best rock in the US shale oil energy ecosystem. Cost the capital has gone up. Managements aren't allowed to spend. Investors are really not not not a part of the asset class at all. So one of the interesting things that I would say today is, generally speaking, the cure for low prices, low prices and the cure for high prices is high prices. And investors are saying, well, prices are high. Is that leading to a production response? And the answer is not yet like prices are not high enough yet or haven't been to invite new drilling and new mining and so forth. Actually, copper went up a lot last year, and most copper producers 2027 CapEx forecasts were lower than market expectations. And so the first competing factor is we think we're in an era of scarcity whereby it's really hard to, you know, mind things and sort of actually increase the supply of stuff. And that doesn't even get to the fact that permitting issues are getting harder. And sort of there's a, you know, an unwillingness to sort of have this stuff produced a round the world. So supply is really challenged. The second thing is, well, the demand is actually pretty strong. You know, globally you're seeing people get wealthier and as you get wealthier you're sort of consumption goes up. You know, the one data point that I like to talk about for energy markets is as follows. We're in the developed world, and we have a very, I think, developed world mindset. We consume on average seven units of energy per person per year. There's a billion of us consuming seven. We want to consume six in the next decade per person. We want to get more energy efficient. I think we can get there right. We have a lot of technologies that are going to make us more energy efficient, and we 1 billion people are going to go from 7 to 6 over time. The developing world has 3 billion people right now. They consume one unit of energy per person. You know, they want to get to two. If they get to two, they're still 70% worse off than we are. And we think they're going to get there, too. So as we get more energy efficient in the developed world, this sort of massive rising global middle class around the world is going to really start to increase their commodity intensity. And, you know, that's going to lead to very strong demand. We're seeing it across metals, across energy and across AG. So challenge supply, strong demand I'd say those are generally things that would lead to higher prices all else equal. Then the third factor, you know, you said put geopolitics aside at the start. So I did for the first two. But we have to consider that part of it. Right. The global commodity supply chain was very let's call it like efficient with air quotes for the last 40 years. We think about it as having adopted the Toyota just in time manufacturing model. I want to get the lowest cost good from the lowest cost supplier right when I need it, and then move it to the end customer. And that caused our entire commodity system to get pretty concentrated. You know, a lot of copper concentration, lots of uranium concentration, lots of lithium concentration in markets that are geopolitically more instant and stable. I mean, well, was the commodity this year that was supposed to be the most oversupplied. And obviously there's a conflict in the Middle East and the markets realizing, hey, concentration risk even in is pretty high because if the Strait of Hormuz is closed, that's a problem. What's that going to lead to? In our view, it's going to lead to we think, a multi-decade reversal. We're not going to just rely on the lowest cost provider. We're going to want to produce some ourselves. We're only buy from our friends. We're going to want to have higher inventories. You know, you read about jet fuel inventories in Australia and how low they were coming into the current Middle East, tensions and crisis. They're going to want to go into the next one with a lot more inventories in the system. And those things we think almost definitely mean even more demand and higher marginal cost for stuff. So you put those three things together really hard to say what our commodity price is going to do in the next 3 or 6 months, but it comes a lot more into focus when you think 3 or 5 years from now, and our view is prices need to rise because that's where you're going to get less demand and more supply, and that's what you need for commodity markets to balance. So based on that, and then this whole post-Covid examination of supply chain redundancy, not just in time but just in case mentality, which kind of after the fact, everything so, so obvious. It was just think about it when it is before that, for example United States starting its own industrial policy, either we call it that or not, but it's basically getting more involved in figuring out what directionality our industry and our enterprises should focus on. And some of that is really infrastructure as well. You need to bring manufacturing back. You have to whatever that means per se. It's going to have a higher demand for for commodities. I mean, you just have to build more stuff or just more stuff, period. Whatever that means, right? And stuff is made out of real stuff. So real stuff is real assets. So based on that, it seems like it's a, it's a good idea to, to think about having allocation to commodities exposure. We haven't talked about water. We really haven't spent much time on agriculture. But, you know, commodities people tend to think of as metal mines and gold and whatever precious metal and that kind of thing. Just as a hedge against this rise of prices, primarily really using the word inflation, I think that we even without this discussion, inflation is likely to remain higher for longer because of all the friction in the in the, in the world friction. I don't mean just war, but there's friction all over. I suppose you subscribe to that is they is the base first before they even think about other real assets, before you think about infrastructure. Am I correct if you think in latter. Well, so it's a great question. So so we think for for strategic asset allocators who are sort of thinking in multi years or decade lenses. So the first thing that we would say is and this is obviously a generalization of simplification, most people have the 6040 portfolio. Yes 60 stocks and 40 bonds. And that works a lot of the time. But sometimes it really doesn't work. And what we're trying to really bring out there as a thesis is the 6040 is gone. Don't have a 6040 portfolio. You should have 50, 30, 20 portfolio, 50 equities, 30 fixed income, 20 real assets. Again, just making a broad generalization. You need to carve meaningful exposure in portfolio for broad real assets. Then it becomes sort of the implementation implementation tool and sort of the trade offs and the risk returns. So you know commodities are going to have the most inflation beater, but they're also going to be somewhat inefficient ways potentially to invest because they don't pay a dividend. They can be expensive to store. You might lose based on the sort of roll yield. The commodities indices tend to be very energy dominated. So you could have inflation in other goods. But you know, maybe prices stay steady. So you know, they are one component. And we think sort of for folks that understand what they provide, they could be a great opportunity. Infrastructure like we said is different. It doesn't invest in commodities itself, but it's that lower volatility downside protected equity exposure. I think about it as the ballast in your equity portfolio to offset when broad equities are really declining, but still sort of give you the equity returns. The natural resource equity side is sort of somewhere kind of between the two. You know we like in that, you know, part of what you're doing in a commodities allocation, as you have to be able to be both a good buyer and a good seller, commodities will mean revert over time. So I've got to add to the allocation that I've got to subtract from the allocation. Once I feel like sort of the relative, the relative value is no longer there with natural resource equities, it's companies that are professionally managed. So one thing you're doing is you're sort of outsourcing that decision to a professional management team. Hey you guys, I like copper. I want to own hypothetically a copper investment. But that management team is going to be the one who goes and figures out where they want to be on the cost curve. You also can get a yield. You can invest in a lot of different things. So you can invest in rare earths and lithium and uranium in the futures markets. You can get that stuff on the equity side. So you know, we think there's a place for each of the component parts of real assets in that allocation. And then it's very much like an objectives based analysis. Is it inflation hedging you want to do. Is it protecting for rising interest rates. Is it something else. And that's when you can really sort of go under the hood and figure out what's the best actual way to reflect this, this view. And when you think about infrastructure, a lot of people think about the infrastructure and what they feel that that is a good investment. One is inflation hedge or, you know, every time you build something and to replace it in the future, it costs more. So it has a inflation component to it. Number two, it is kind of a and today we think about is it going to be subject to tariffs and all that. It is not. It's kind of neutral. It's nothing to do with tariffs. Right. So and geopolitics perhaps even also less because you basically build a building and you're generating electricity or what have you. But it also supposed to have a income component. Can you talk a little bit about how what is the expectation of income. Because when we think about investing even in utilities, you and I talked to, you mentioned earlier they are actively updating their power grid or whatever that they are doing to, to to fix their infrastructure if you would, so that they can continue to generate whatever utility gas or electricity or what have you. But when you invest in them, you are giving them money to invest in themselves. So it's not really investing in them to give you income back. Yes, there's going to be income, but it's not a 1 to 1 is you're investing in their future. So can you talk a little bit about infrastructure like airport cell tower, all that? How reliable is their income in light of that they may need to update them. And and how do we think about that investment from an income only or really shouldn't be. It's just a supplement to income. So how do we use it I guess just a question. Yeah. No, it's a great question. And there's I'd say there's lots of different ways that you can approach investing in even infrastructure. So you can have a very high income approach where you can have more of a growth approach. I mean, we think sort of generally speaking, infrastructure cash flows are very resilient. They tend to grow at some combination of GDP and inflation. And then they obviously want to reinvest because part of infrastructure is if you can modernize, you can build more, you can sort of grow your cash flows over time. So generally speaking, we think you can get some good income, a couple percent yield from broad sort of basket of high quality infrastructure companies, and they can sort of grow their cash flows over time, GDP plus inflation. So you kind of build that up and you get sort of a nice combination of both. So like I said you know are sort of motto for for infrastructure is low volatility downside protected equity returns. So we do think over time you can get returns very similar to broad equities. But it's done a lot more low volatility way. And that's because it's more predictable. And it does offer that you know better yield than sort of many other sectors out there. So you know there's trade offs if you want to go in a sort of a yield focused infrastructure strategy that tends to be okay. But those tend to be some of the lower quality businesses sometimes. And we think sort of part of the cases, you want to be there for the growth, you know, you want to be helping build the bridges and building the toll roads and building the airports and seeing the good returns from that stuff as well. So a more balanced approach we think tends to help investors achieve their objectives. So let's turn our attention briefly to AI infrastructure, which is consists of really 2 or 3 things. One is that actually brick and mortar you need to build some you know, these data centers reach that kind of thing. It's one area. Another area is really energy transition. I know one of the big, big firms I think is a Microsoft, and one of them end up buying Three Mile Island or something, something unimaginable. But in any event, so there is a tremendous thirst for, for for energy, for, for AI. So but yeah, you have this whole trend going, not in my backyard, you know, don't come to us because now you're raising electricity costs for all the people who live around that neighborhood or that state or whatever that area of that county. It's just because you are putting a data center and you're sucking up all that energy. So there are all these things going on. Can you talk to us and inform us a little bit about how we think about data, AI and energy transition? We're going through it now. It's a lot more commitment to build more. It's like insatiable. And of course with the space X we're going to build it on Mars or somewhere else. But but nonetheless. So tell us a little bit about how we should think about this. And what does it really mean and how long is this is this going to be a ten year run five year run, or are we coming to the end of it or we are still in second quarter? Give us some perspective, please. Yeah. So so let's start with just this conversation of the energy transition. Like what does that mean. And is it real. And I'd say the energy transition is happening, but definitely not the way that people thought it was five years ago when people heard energy transition in 2021 and 2022, I think that they thought out with the old, in with the new. We're going to get rid of all traditional forms of energy. So call that coal, oil, natural gas. We're going to displace and replace it with alternatives. And everything is going to be easy to do and sort of look good. That obviously has not played out, but it hasn't played out, mostly because energy demand continues to be very strong. Energy demand is a function of three things population growth, economic growth and energy intensity. Of that economic growth 3 or 4 years ago, we actually designed a whole strategy, sort of thinking through this, this, this question and what we said was population is going to grow and economy is going to grow and energy intensity is going to go down. We're going to get way more energy efficient. But even when you factor that in, we had energy demand rising a lot. And so we were going to need a lot of investments in energy supply just to meet that demand growth. So what that looks like is an energy transition in market share, because a lot of the growth is going to come in alternatives, but actually a lot of resiliency and even growth in traditional forms. And so hey, the market share was going to shift. But it was a more of everything world. But we talk about as the energy addition that was a pre AI view, post AI. Basically just every number has been revised higher. So we have more demand. We need even more alternatives and we need a more traditional. And so we think the sort of investment imperative for each of them is immense. And the binding constraint on AI today is compute and power. And that's a secular trend that's going to take a long time to solve. So we think it's going to be persistent. Then when you think about the sort of transition at the next level, it's a trade off. You know, I kind of try to bucket the world in two very sort of stark, stark views. And obviously this is again a simplification. You have traditional energy and you have alternative energy traditional over here. We don't love it because it has emissions and we want to be clean. So bad thing emissions. Good thing is it can run 24 over seven 365 produce on demand reliable. What we call baseload alternatives is the other side. And it's kind of the inverse. No emissions. It's what we want. Unfortunately it's not predictable. It's what we call intermittent. You know you actually know when it's going to be on. But at night when the sun's not shining, you can't really store the energy. You know, that's a problem. You know, five years ago when electricity demand was flat, you're not as worried about that trade off. You know, right now a lot of this electricity demand growth. Again, half of it's coming from data centers. You're the CEO of a data center company today. You're feeling pretty good about your business. But like you wake up with night sweats that the power is going to go out. You cannot lose power. So your ability to use alternatives is very different. And sort of your willingness to retain and maybe even grow some of the traditional forms until you get sort of more hardening and stability and predictability and reliability from alternatives is better. So that's going to just it's going to take a long time. And it's why we think resiliency and traditional and lots of growth and alternatives, we think both are going to be big parts of the market for a really long time going forward. You know when you look under the hood, I mean, like we really like nuclear energy. We think there's a big nuclear renaissance because it's both clean and baseload. There's lots of new types of technologies that are trying to solve these problems. So you've got enhanced geothermal utility scale solar. We think all that stuff is really exciting. Like I said, natural gas we think is going to grow way beyond folks expectations for a while. So so we think that there's a big winners in both traditional and alternative and big losers on both sides as well. But our sort of core belief is demand is going to rise. We need more of everything. And then if you can figure out the best businesses on both sides of the landscape, we think the energy markets are going through so much growth and disruption that you can see some really good opportunities. So there has been this I remember peak oil. It wasn't that long ago. I know it dates me a little bit that term and it came and gone and and then we went into the we had the greatest country that we are finally energy independent. Great single line. But I don't know if we really are in the sense that my understanding is our refineries are for heavy, sour, but we produce light sweet and we can't really use the same refineries for that kind of all that we produce. So are we on a macro level? Yeah, we have produced enough energy. We'll take care of it. Everything internally, but we really don't because we produce the kind of, you know, energy that or what raw material that commodities that doesn't quite fit what we infrastructure. But I'm not hearing anybody building a refinery because it was so polluting and so terrible and so on and so forth. So we're actually still dependent importing oil and at the same time we're exporting. So. So is there a reason why we don't want to think about that? Is it really because of regulation? Is it because that we are trying to face this thing out? Why are we spending money 20 years later? We still are not are still dependent on, you know, petrol, so to speak. Yeah. I mean, what I maybe say here is like the energy independence phrase to me is very similar to the energy transition phase. Like people said it five years ago, thinking that it meant one thing, but it actually didn't mean that. So it used to be energy transition out with the old and with the new and energy independence. I think people sort of felt, oh, like, we'll just put proverbial walls up at the borders, and we're going to be sort of a wholly outside of the sort of trade economy and very American thinking, though very American. We can take care of it. So so I guess like this, I guess I'm like making up, making up the analogy. But what I give you is like, that's the same thing as saying that we are like caloric independent, so, hey, we can produce more calories than we consume in the US. Yeah, unfortunately it's all potatoes. So you're kind of like, do I want to have a diet that's all potatoes? Or actually, am I going to trade some of those potatoes for someone else that has corn and milk and dairy? You know, definition. You know, we could be caloric independent because we produce enough potatoes, but that's not the diet that we want to eat. And honestly, it's not a healthy diet. But that is kind of the energy markets. Like we produce more energy than we consume, but it is kind of one type of energy and we need other forms for a good diet. And so we're going to sort of use what we produce, and we're going to trade more with friends than with anybody. That's kind of obviously a big shift from a couple of years ago. But we're still going to need to be part of a dynamic global energy market. And so like, you know, it's not a we can just disconnect from the world. Actually, you get even more connected with the world as these things happen. But but I think that that's really what energy independence is. It's yeah, we have this excess. But you know, it's not enough for us to sort of have a healthy diet on our own. We still need friends. So what, you mean still need friends? You want the you want the dairy farmer. You don't want just just the potatoes. Although, you know, you can live off French fries. My kids do, I will. I know our time is almost up. So first of all, I really enjoyed. I learned, learned a great deal and put proper perspective and take the truth from fiction as well. And really important because it's one thing to invest in, invest blindly is silliness. Really trying to understand why we want to invest in infrastructure, why we want to do real assets, and why real estate or what have you. And what do we expect out of it? I think that's that's the first thing we should we got to know what we want and then see if this fits what we want. Yeah. But I think we can say that in higher prices because of demand, because of supply, because of all the reasons, the geopolitical friction or what have you, redundancy, you know, all the things that we talked about is hard to see a world that we're going to go the other way cheaper, it's more likely to be higher for longer. And that means inflation is going to be at higher for longer. Now, I'm not saying runaway inflation a double digit. That's not what I'm saying. But going back to it to to a sub two is not likely. We've been above three now for some time and we just got a four print I think today. So so I think that it makes sense for, for, for all of us. So investors or allocators or what have you to really think seriously about not only the short term of the Strait of Hormuz, but really longer term that this is a this is a trend that is hard to figure out how we can bend that to be not necessary when we're still building and rebuilding and absorbing all this stuff. Yeah. I mean, maybe what I would just add to that. So like I and we agree that inflation is definitely going to be higher on average in the next decade or two than it was the last decade or two. But we also think it's going to be highly volatile. And so, you know, it's going to be more difficult to predict actually if you go back and you look at the data and we have a great chart on this, we look at like the 50 year history of inflation. Surprise. So on January 1st, what did the market have for inflation expectations. And then on December 31st, what were the actual or the actual inflation results from 2009 to 2020 for like 11 years. Inflation surprise low every year. That was that sort of post GFC. Very unique market actually over 50 years. It's roughly 50% of the time. Inflation surprises high 50% of the time. Inflation surprises low. So I think it's going to be high on average. Even if you don't think it's going to be high on average. The historical data would say half the time you're going to be right and half the time you're going to be wrong. And if it's kind of a coin flip, then we would argue you should at least have some of your portfolio in things that can help protect, protect when you are wrong. And I think the market's waking up to that, and you put that all together with these sort of more secular geopolitical trends and, and so forth. And we think that has the makings for not just the coin flip, but better than that. And we think that that's sort of why real assets again, it's not a tactical call. It's not a hey, commodities are going to go up in 30 days and you should submit. It's a strategic as you sort of plan for the longer time horizon. You know, we think that this is a place that should be having meaningful, meaningful conversations and investment committees today. And you'll likely over time get, get, get bigger investor allocations. So I would close by asking you not a trade secret what you guys are doing in in the in the dark room, in the back, wherever that may be. But to think about what what is the market missing now when it comes to this whole area infrastructure where they are not spending a whole bunch of time focusing, they are focusing on the on this. Is there such thing as you think? It's broad based. Every aspect of it is being exploited and invested in. So it's a really great question. So we think sort of passive strategies are great in some sectors. And it's then important still to go to active specialists in other sectors and both natural resources and infrastructure. We would try to strongly make the case that active management matters. We are seeing strong growth across each of the four acute subsectors. All these this conversation has sort of alluded to what we see in each of them. A lot of these are regulated businesses though. And again affordability is a problem. And so we're worried about the average utility. So if you're investing passively you're on you're getting average returns. And the average the average utility we think is going to struggle because of regulatory pushback. So we have a global team of analysts, for instance, on infrastructure. And we spend a lot of our time just considering regulatory risk. You know, we're listening to local regulatory hearings. We're talking to local regulators, we're talking to plant managers. We're looking at what's going on with elections and so forth. Because if you can figure out, well, who are going to be the beneficiaries of all this growth and CapEx, and then who's potentially actually going to be burdened by all this investment opportunity? That's where we think you can sort of start to see some some really good results. So, you know, we think the market's still underestimating the growth in the industry overall. But we do think it's important that you kind of take a very specialist lens because these are very different businesses to consider and analyze and research. And you have in other sectors. Well knowledge is power, right? I mean, you know, and research it gets you knowledge. So when you think about that now, there's certainly a trend in the private market space is getting more and more less noise if not collecting of investment dollars, certainly a concentration or focus on private private infrastructure. Can you sort of tell us what's the difference between a public infrastructure and private infrastructure? Why is it 1st May be at time more favor than the other? And maybe it's the blend of both that makes sense. Can you talk a little bit about that? Yeah. So we think infrastructure is the asset class. It's not just private or listed. We think the sort of broad definition is important. And we think sort of both things can provide good investor options. So on the private side these are big assets. Obviously by control they tend to be a lot more concentrated portfolios because there's so much bigger. And obviously you have lower volatility but way lower liquidity on the listed side. You can be diversified globally. You can be diversified by subsector. You've got the sort of largest companies that have really attracted access and cost of capital. And the investors obviously have sort of liquidity from that sleeve. So as I think about it, you know, the the secular megatrend is infrastructure. If you have dollars that you don't think you're going to need for at least the next 7 or 10 years, and you can find a great private infrastructure manager, that's great. But if you have dollars that you think you might want to have access to in the next two, three, 4 or 5 years, we think listed is actually a really good way to fill out portfolios for that sort of environment. As it stands today, you listed infrastructure valuations have corrected a lot more than private infrastructure valuations. So we do think the relative value favors listed here and now. But again it's an asset class. It's infrastructure. And this sort of implementation option is just very dependent on your willingness to accept volatility and illiquidity and sort of your desires in terms of being able to access money or participate with a private manager for longer. But your but your opportunity set is not significantly different, is it? On a private side vs public? Are there specific opportunity that only available in private? I cannot I don't know enough to answer that question. So what's your thought on that? Yeah they're different I mean in the listed space and it can be regional. So there's a lot more sort of private infrastructure businesses in Europe. And a lot of the Australian infrastructure has been taken private in the last few years. But you can't own a class one freight rail in the private markets, for instance. You know, they're just the publicly traded US freight rails. A lot of the utilities tend to be listed as opposed to owned by private managers. So a lot of it's just sort of again, these are regulated businesses. So the regulator has to approve of a sale to a private owner. And so you know the investment characteristics are similar. But the regional disparities and the sector disparities and what you can even get access to can differ between the listed and private markets. And what about data centers? I mean, there's a lot I mean, like a lot of rights, data center rights and so on. Those are more private. Many are private, not all of them. What's your thought about that area? Yeah. So data centers are not in the infrastructure benchmarks, but they are in our infrastructure universe, which means when we think that they offer the best relative value, we can own them. There's a handful of publicly traded data center companies, both in the US and in global markets. And we sort of know those companies. We study them well today. We actually like the the power side better. The binding constraint is power. And so we see better relative value in utilities and natural gas pipelines and some of the things that we've talked about. But to the extent that we saw really good relative value in the data centers, that we do think that that is considered infrastructure, and we've owned them in the past, and we would consider owning them in the future. That's great. And you don't see a there's always people talk about when things go up in price, they think they use the word bubble. I mean, to me, bubble, you can only realize after a burst you never know when it is actually a bubble or not. Do you feel that the amount of money that's been going on, going into this is at a almost unsustainable, or you think this is still, you know, there's a lot more building to be done. So I think maybe we are too early to use the word bubble. What's your what's your overall, I don't want to say for sure on one or the other, but in that spectrum, do you feel that there is any overvaluation over excitement in markets are definitely feels like there's some exuberance and overvaluation in pockets here and there. I mean, for us, when we think about natural resources and infrastructure, what we'd say is let's kind of follow the CapEx dollars, CapEx dollars continue to accelerate. So hyper hyperscalers continue to increase their CapEx. 26 2728 we think it's it's good investment because it does seem to be like a existential technology change for them. Now, like I said, in these types of markets, some lower quality companies are going to be sort of swept up in the sort of rising, rising current and the rising wave and, you know, are there bubbles forming in places, for sure. But for us, following the CapEx dollars, they keep accelerating. We we think that that sort of good spending still. And again, we're investing in the companies that are sort of the most bottlenecked. You need the power. And, you know, these are regulated businesses that have more predictability. So in the markets that we're spending the majority of our time, we haven't seen the sort of huge disconnect between sort of valuation and sort of long term potential. Terrific. Well, I, I could just go on and I know I keep saying we're coming to an end and is already passed the end, but thank you. Thank you so much. I learned a great deal. And I, I think this is a very, to me, a very important conversation to, to for the general public even to understand what are we talking about when we talk about, you know, real assets, infrastructure, energy transition. You know, all the things that we take it for granted that everybody knows. But I'm not so sure when you drill it down that anybody can readily explain it. So this has been very delightful and helpful. So thank you for for spending time with me. My pleasure. Thanks so much for having me. Hopefully I'll be back someday. Yeah. Look forward to it. Be careful what you tell me. You can always find more episodes by visiting Phillip Charlton's, or sign us on your favorite podcast app. You can always leave us feedback, ask questions, or request a topic for us to discuss by sending an email to p c at Phillip. News expressed in the Tao Chao Podcast are individual opinions, and they do not represent the employees of each guest or the firm. Each guest is associated. 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