Emerging Investment Themes

After decades of offshoring manufacturing to low-cost countries, the U.S. and Europe are actively bringing production capacity back onshore or to nearby allied nations (nearshoring). This shift is driven by policy, economics, and risk management.

Legislative drivers:
- CHIPS and Science Act (2022): $52 billion in subsidies for domestic semiconductor manufacturing, plus $24 billion in tax credits for chip fabrication facilities. TSMC, Intel, and Samsung are building fabs in Arizona, Ohio, and Texas.
- Inflation Reduction Act (IRA, 2022): $369 billion in clean energy incentives, with domestic content requirements that favor U.S.-manufactured components for solar panels, batteries, EVs, and wind turbines.
- Infrastructure Investment and Jobs Act (2021): $1.2 trillion in infrastructure spending including $110 billion for roads and bridges, $65 billion for broadband, and $55 billion for water systems.

PE opportunity: Reshoring creates demand across the industrial value chain. PE firms are investing in companies that supply construction materials, industrial automation equipment, specialty chemicals, electrical components, and workforce services (staffing, training) to support new manufacturing facilities. The supply chain for semiconductor fabrication alone involves thousands of specialty suppliers, many of which are PE-sized middle-market businesses.

Nearshoring to Mexico: Mexico has become the top U.S. trading partner, surpassing China in 2023. PE firms are investing in Mexican manufacturing platforms, cross-border logistics, and industrial real estate in northern Mexico. The USMCA trade agreement provides tariff advantages for goods produced in North America.

The global energy transition represents one of the largest capital deployment opportunities in history. The International Energy Agency (IEA) estimates that achieving net-zero emissions by 2050 requires $4 trillion in annual clean energy investment by 2030, up from roughly $1.8 trillion in 2023. PE firms are positioning across the energy transition value chain.

Renewable energy and storage: PE funds are acquiring solar and wind development platforms, battery storage companies, and renewable energy service providers. Infrastructure-focused PE funds (Brookfield, Global Infrastructure Partners, EQT Infrastructure) are among the largest owners of renewable generation assets globally.

Grid modernization: The existing electrical grid was not designed for distributed renewable generation, bidirectional power flows, or the load growth from EV charging and data centers. PE is investing in grid infrastructure companies: power transformers, switchgear, transmission cables, smart meters, and grid management software. Lead times for large power transformers have stretched to 2-4 years, creating pricing power for manufacturers.

Energy services: Companies that help industrial and commercial customers reduce energy consumption (LED retrofits, HVAC optimization, building automation, energy management software) are attractive PE targets. These businesses have recurring revenue models, strong customer retention, and tailwinds from both regulation and energy cost pressures.

Natural gas and transition fuels: While the long-term direction is decarbonization, natural gas remains critical as a transition fuel. PE firms continue to invest in natural gas gathering, processing, and pipeline infrastructure, particularly in the Permian Basin and Appalachian Basin.

Geopolitical tensions, rising defense budgets, and escalating cyber threats are creating sustained demand for defense technology and cybersecurity solutions. NATO members have committed to spending 2% of GDP on defense, and many are increasing toward 3%. The U.S. defense budget exceeded $886 billion in FY2024.

Defense technology: Traditional defense primes (Lockheed Martin, Raytheon, Northrop Grumman) are publicly traded and too large for PE buyouts. But the defense supply chain is full of PE-sized companies: makers of specialized electronics, sensors, communications equipment, unmanned systems, satellite components, and defense software. Firms like Veritas Capital, AE Industrial Partners, and L3Harris spin-offs have built portfolios of defense-focused companies.

Cybersecurity: Global cybersecurity spending is projected to exceed $300 billion annually by 2027, driven by increasingly sophisticated ransomware, nation-state attacks, and regulatory requirements (SEC cyber disclosure rules, CMMC for defense contractors, NIS2 in Europe). PE has been highly active in cybersecurity, with Thoma Bravo, Vista Equity Partners, and Permira acquiring major platforms. Key subsectors include identity and access management, endpoint security, cloud security, and managed security services.

Government technology (GovTech): Modernizing government IT systems is a multi-decade opportunity. Federal, state, and local governments are replacing legacy mainframe systems with cloud-based platforms, AI-powered analytics, and digital citizen services. PE-backed companies like Maximus, GDIT (General Dynamics IT), and numerous smaller platforms serve this market.

The explosion in AI workloads, cloud computing, streaming, and connected devices is driving unprecedented demand for digital infrastructure. PE and infrastructure funds have become major owners of the physical assets that power the digital economy.

Data centers: AI training and inference workloads require massive computing capacity. Hyperscale data center capacity is projected to grow 25-30% annually through 2028. PE firms and infrastructure investors are investing in data center development platforms, powered shell facilities, and the supply chain (power distribution, cooling systems, backup generators). Blackstone has committed over $70 billion to data center investments globally. The constraint is not demand but power availability, with some data center projects requiring 100+ megawatts of electrical capacity.

Fiber networks: Fiber-to-the-home (FTTH) and fiber-to-the-business deployments are expanding rapidly, particularly in underserved suburban and rural markets where federal broadband subsidies (BEAD program, $42 billion) are accelerating buildouts. PE firms including Searchlight Capital, EQT, and Stonepeak have acquired fiber platforms. The asset is attractive because of its long useful life (25+ years), high switching costs, and recurring revenue model.

Cell towers and small cells: 5G network densification requires significantly more antenna sites than previous wireless generations. Tower companies (American Tower, Crown Castle, SBA Communications) are publicly traded, but PE is active in small cell deployments, distributed antenna systems, and in-building wireless solutions that support 5G coverage in dense urban environments.

Digital infrastructure shares characteristics with traditional infrastructure: long asset lives, contracted or recurring revenues, high barriers to entry, and inflation-linked pricing. This makes it attractive to both PE buyout funds and dedicated infrastructure funds.