CIBC's James Wright and Ines Serrao are joined by Jess Thompson, Head of North America Infrastructure Debt at Allianz Global Investors, for a timely discussion on the rapid rise of private credit in US energy and infrastructure. They explore how private credit is complementing banks, bridging funding gaps, and supporting complex projects, with insights on market trends, investor priorities, and opportunities for partnership.
Intro: Welcome to The Energy Shift, a podcast series focusing on the rapidly evolving energy landscape with hosts Ines Serrao and James Wright.
James Wright: Hi Ines, morning, how are you?
Ines Serrao: Hey James, I'm really well, how are you?
James Wright: I'm good, thank you. As we record this, I'm in Chicago this week. It's been pretty cold and windy here and you and I are preparing for Infocast next week in Arizona, which I think we've just been told it's going to be 105 degrees down there next week. So you're going to see this very white skin of mine spontaneously combust as we get off the plane.
Ines Serrao: (laughs) I cannot wait.
James Wright: Yeah, it's going to be fun. So what are we going to talk about today? We're going to, in this episode, get into the world of private credit. It feels very topical given the rapid growth of private credit being mobilized towards infra assets in our space. And in particular, as it relates to energy and infrastructure projects in the US and today to help us guide us through all that, we're very fortunate to be joined by Jess Thompson. Jess has just recently joined Allianz Global Investors as Head of North America Infrastructure Debt. And it's great to have Jess join us today and really provide you and I, think, a really fresh perspective on this space, Ines.
Ines Serrao: Yeah, that's great. And I am really looking forward to this conversation. And to get us started, I thought I'd share some quick data points to help frame this conversation up. And so according to the Fed, the size of the private credit market was around 1.4 trillion in 2024. And this includes funded assets and dry powder, and it's significant in size. But more importantly, Moody's projects this to grow to 4 trillion by 2030 and some sources point to energy and infrastructure as the fastest growing segment for private capital in the near future. I would even go further and argue that it will be very challenging to finance the large pipeline of projects in AI and energy, which we focus very clearly on without significant contributions from this pool of capital. I'm glad we have Jess joining us today to go through all of this. So welcome Jess to the podcast.
Jess Thompson: Thank you, Ines. It's great to be here with you and James today, and I'm looking forward to the discussion.
Ines Serrao: Before we jump in, Jess, could you please introduce yourself and give us some background on what Allianz is doing and what your new role is over there?
Jess Thompson: Of course. So Jess Thompson, I am the Head of North America Infrastructure Debt at Allianz Global Investors. Allianz Global Investors is a leading active asset manager managing over 690 billion in assets, including approximately 115 billion in private market strategies, which is where our infrastructure platform sits. Allianz is one of the largest infrastructure investors globally, managing 63 billion across both infrastructure equity and infrastructure debt. The infrastructure debt platform was established in 2012 as one of the first movers and really a pioneer of the asset class. Today we are the largest infrastructure debt investor by size and have continued to expand the platform along the growing opportunity set that we see in the market. We have teams across Europe and the Americas. The Americas is a key growth market for us with recent senior hires here, including myself and Maria Galvis Grause, who leads our Latin America Infrastructure Debt business. So we've been brought on to expand our capabilities for our investors in this region. In terms of investment strategy, we invest across the credit spectrum, so covering everything from investment grade to high yields. We have different pockets of capital that allow us to provide solutions across the capital stack from senior secured, junior and mezzanine debt. And we invest in a wide range of different infrastructure sectors spanning core, core plus as well as core plus plus across four main verticals. So power and energy, transportation, social and digital infrastructure.
Ines Serrao: Great. Thank you, Jess. It's very interesting to hear everything that you're working on and not just what we focus on our podcast. But I thought we'd start with something that we hear a lot. And I say this with some jealousy, but also a lot of love. We hear from the market, our clients, our team, that there's a lot of mystique around private credit, in particular the flexibility, the ability to adjust to size and structure. So when you think about private credit from a high level perspective, what are the facts you would like to highlight to the listeners, including something they may not realize if they're more versed in traditional bank lending in the infra-space?
Jess Thompson: Yeah, this is a great question to start us off because I think there really is a lot of mystique around private credit. And I think this really just stems from the fact that private credit doesn't operate within the same structural constraints that banks do. So traditional bank lending, especially in infrastructure, is often driven by regulatory capital rules, internal concentration limits, and fairly standardized underwriting frameworks. So this tends to produce loans that can look quite similar in terms of size, tenor, covenants, and amortization profiles. And private credit, on the other hand, has the ability to be more solutions oriented because private lenders are typically investing discretionary capital. They can tailor financing to specific needs of a project or a borrower, whether that means adjusting tenor or structuring cash flow profiles differently or underwriting opportunities that might sit just outside of banks risk framework. Another point that sometimes surprises people who come from the bank market is that private credit isn't necessarily replacing banks. It's often complementing them. In many infrastructure transactions today, private lenders are working alongside banks to provide incremental capacity, longer duration capital, or structural flexibility that helps get projects across the finish line. So I think when you strip away the mystique, the core idea is pretty simple. Private credit brings flexibility and additional capacity to the infrastructure financing ecosystem. And this can be incredibly valuable as projects become larger and more complex and require more tailored capital solutions.
James Wright: Thanks, Jess. That's a great way of framing up some of the topics we’re going to get into now. So actually, if we kind of then, let's kind of bring it home a bit to infra. So if we, it's interesting, S&P published an article about this, I think a couple of months back about private credit bridging the infrastructure funding gaps, so to speak. So where do you think those funding gaps are today? Like what are you seeing in terms of what's driving those gaps and what's maybe causing it kind of at the asset level?
Jess Thompson: Yeah, I think the S&P report is framing it correctly. Private credit has the potential to play a meaningful role in bridging some of the structural funding gaps we're seeing in infrastructure today. At the highest level, the scale of the need is enormous. McKinsey put out a report last September called “The Infrastructure Moment” that put the figure at 106 trillion in investment through 2040 just to meet the needs for new and updated infrastructure, with the funding gap estimated to be around 20 trillion. When you break that down, I think the gaps tend to show up in a few specific areas. The first is newer or evolving infrastructure sectors, and this is where a lot of the S&P report is focused on. So things like digital infrastructure, energy transition assets, and part of the broader electrification value chain. These sectors are growing quickly, but the underlying business models are still evolving, which can make them harder for traditional bank lenders to underwrite. A second area is around green field or construction stage projects. I think banks have become more selective about construction risk over time, particularly given regulatory capital constraints and balance sheet considerations. So this has created an opportunity for lenders who can take a longer term view and structure capital around project development timelines. A third gap is really around the middle of the market and more complex structures, so situations where projects may be too large or too bespoke for a single bank to hold, but not necessarily suited for a public bond market. I think private credit can often step in where there's flexible structuring and the ability to underwrite across different parts of the capital stack. So if you zoom out, I think the drivers of these gaps tend to come down to a combination of things, namely public infrastructure funding deficits, regulation, and the scale of the capital needs, as well as the increasing complexity of infrastructure. So as projects become larger, the technology becomes more complex, more tailored solutions to specific markets and financing solutions also need to evolve. And that's where private credit has really found its role in the ecosystem.
James Wright: Yeah. And just a side note on that Jess, that's a point well made to me. I think, Ines and I were talking about this a few months ago on the podcast, like I think, you know, back in the day when we all started doing Project Finance, you know, a large project, quote unquote, it was a few hundred million dollars. And you know, we're all seeing stuff today that's 20, 30 billion dollar plus, right? So it's just the numbers are just off the charts in terms of spending.
Jess Thompson: It's been an incredible evolution, yes.
Ines Serrao: And maybe I'll drill down a little bit more on that because we're an energy focused podcast and James is right. We were talking about the evolution of the size of the deals since we started working. But when you look at the scale coming from the AI build out, the data centers in broader infrastructure needs, the market seems to be able to be insatiable at this point. How much do you think private credit can realistically absorb in the next few years?
Jess Thompson: Yeah, I mean, with the figures I just noted, over 100 trillion in infrastructure investment in just the next decade and a half, the demand does feel insatiable. The megatrends that are defining infrastructure right now, energy transition, digitalization, deglobalization, urbanization, aging demographics, sustainability, these are all mega, mega themes, and I think create significant opportunity for private infrastructure credit. The private credit market has of course grown rapidly over the last decade and today represents well over a trillion dollars globally. So it's already operating at a very meaningful scale across the board, but especially in infrastructure. I think we've seen really strong growth in infrastructure and private credit over the last 10 years, but we're still only seeing about 8% of infrastructure AUM going to debt with the large majority still being allocated to infrastructure equity. So I think that creates a really significant room for growth within infrastructure private credit. And we expect the asset class to continue to grow alongside to meet the demands that we're seeing in the market.
James Wright: It's interesting because as I think about that, I mean, what we're seeing, I won't say pressures, but just kind of thematics, is really around data centers. I mean, it's just dominating every kind of infra word cloud, if you like, at the moment. And the pace of development there is just staggering. And I think Moody's recently said something like three trillion will be invested in the US alone, just in that sector. So when you think about that addressable market, does that make data centers in particular sort of must do sector for private credit and what's making those deals maybe more or less attractive from your perspective?
Jess Thompson: Yeah, staggering is the right word here. The TAM certainly makes data centers an exciting opportunity for private credit. That said, I wouldn't characterize it as a must-do sector for private credit in the sense that every opportunity automatically makes sense. Even in these high growth markets, selectivity still matters a lot, potentially even more so. So from a private credit perspective, what tends to make data centers more attractive is really the quality and durability of the underlying cash flows, right? So we look closely at things like the strength of the tenant, the length and the structure of the contracts, and the overall demand profile in that specific market. Another important factor is the power story, which has been increasingly become central to the sector. Access to reliable, scalable power along with associated transmission and interconnection can be one of the biggest determinants of whether a project is ultimately successful. Structure also matters quite a bit here. Some opportunities are more greenfield or development oriented, while others involve more stabilized assets with longer term contracted revenues. So private credit can participate across the spectrum, but the risk profile and the structuring will look very different depending on where a project sits in its life cycle. Finally, we spend a lot of time on evaluating the sponsors and the operators. Given the pace of growth in the sector, execution capability, whether that's around development or power procurement, the tenant relationships is really critical. So, you know, while the total addressable market is clearly enormous and growing, the way private credit approaches the space, I think, is still very much bottoms up and opportunity specific. I think the size of the market creates opportunity, but the fundamentals of each project ultimately drive whether it's an attractive investment.
James Wright: Yeah. And that's, that's refreshing Jess, cause that's almost, almost verbatim how we think about that stuff as well. So we're not, we're not too far apart on that.
Jess Thompson: (laughs) We’re aligned.
James Wright: Yeah, exactly.
Ines Serrao: I propose we pivot back to renewables, which we all know is one of my favorite subjects, not necessarily my absolute favorite subject. And historically, there's been a very aggressive amount of bank capital in many renewable segments, and especially for more down the fairway assets. And what at least we've seen from our seat, and I would love your view, is that this has made the cost of capital difficult for private capital to play a role in that space. Where do you see private credit being able to make it work in the renewable sector?
Jess Thompson: Well, renewables is also one of my favorite subjects. And I think it's an interesting segment of the market to highlight some of the differences between banks and private credit and how sponsors and companies in the renewable space are using these different sources of capital. As you noted, banks have been very competitive in the more down the fairway assets, fully contracted utility scale solar or wind with strong counterparties. There's been a deep pool of bank liquidity here, which has pushed pricing to levels that can be more challenging for private credit to match. With that said, with investment grade strategies, private credit is still active in these sectors and I think has been able to complement banks and provide longer term solutions. But with spread compression, relative value there is certainly a key consideration. Where we tend to see private credit play a more natural role is in parts of the market where there might be a bit more complexity or where the financing needs fall outside traditional bank parameters. So one example is development stage financing, particularly for portfolios or sponsors that are scaling quickly and need flexible capital to move projects through the pipeline. So we're seeing a lot more of that within private credit. Another area is transitional or bridge type financing. So for instance, situations where a project may ultimately be refinanced by a bank or capital markets, one should reach a stabilization but needs more flexible capital solution during an earlier phase. We're also seeing opportunities in adjacent parts of energy transition, things like storage and hybrid assets or other emerging technologies where the underlying fundamentals are strong, but the market is still developing from a financing perspective. And finally, there's opportunities in portfolio or platform level financings where lenders are writing a broader operating strategy rather than a single project. And that's been pretty thematic over the past 12 to 18 months.
James Wright: Thanks, Jess. And I'm thinking also about you're obviously wearing a couple of hats. You're wearing, I’ll call it an investing hat, but are you also obviously wearing a bit of a fundraising hat as part of your new role. So maybe we could touch on fundraising for a second. I'm interested in how investors are viewing private credit and how that may impact your strategy and what are some of the kind of challenges and opportunities, from a fundraising perspective you're seeing tied to energy and infrastructure right now. And I'm curious about how the investors you're talking to when they're diligencing stuff they're coming into with you guys, like how they're looking at things like track record and portfolio allocation, ESG considerations, et cetera. Maybe you could touch on some of that.
Jess Thompson: Yeah, I think this is really a timely question because fundraising dynamics have evolved quite a bit over the past few years as private infrastructure has grown as an asset class, private infrastructure credit specifically. At a high level, I'd say investor interest in infrastructure and energy focused private credit remains quite strong. Many institutional investors are attracted to the combination of yield, downside protection, exposure to real assets, particularly in an environment where portfolios are looking for diversification and more resilient income streams. And the asset class has grown about three times overall AUM for other asset classes over the last 10 years. So just highlighting the momentum around it. That said, the fundraising environment has become more competitive and more selective. Investors today are spending a lot of time evaluating where within a private credit manager sits and what their sourcing advantages are, how differentiated their strategy really is. In terms of diligence, the track record is still the starting point. Investors want to see demonstrated experience across cycles, a clear history of managing credit risks and infrastructure and energy, which tend to have long cycles. But beyond that, we're also seeing a lot of focus on portfolio construction and risk management, really drilling down into concentration limits, sector exposures, how managers think about downside protection within those different parts of the capital stacks I mentioned earlier. So overall, opportunity for the asset class remains very, very strong, but the bar for managers is high as it should be. Investors are looking for a clear specialization, disciplined underwriting, and a strategy that can consistently source differentiated opportunities in the market.
James Wright: That's great. And just a quick side note, I'm curious, like are you seeing a lot of that still pointing towards the US just given some of the kind of geopolitical challenges elsewhere in the world? Is the US still a key kind of focal point?
Jess Thompson: The US is still a key focal point. I think investor, that's a very global asset class, right? The investors we work with are very global and we invest globally as well. So you have a lot of benefits there with diversification of sectors and profiles. So we have a very global strategy.
Ines Serrao: I'll switch topics a little bit, although we did touch on this on previous questions in this podcast, on previous conversations. When it comes to private credit and banks, and so the three of us here on this call, are we friends, enemies or frenemies? How do you think about your relationship with us, the banks, and where do you see the best opportunities for partnership?
James Wright: This has been a very friendly conversation, I'm not feeling any tension here for the record.
Jess Thompson: (laughs) I agree, yeah, definitely friends and increasingly partners. Yes, there's competition, but I think of it really more as a co-op-petition. We're often working together, leveraging our respective strengths and core competencies. And we've talked a lot today about the enormous demand for infrastructure debt capital, meeting this demand requires collaboration and coordination across banks and private credit. We tend to play complementary roles and provide complementary solutions. Banks are often very strong in areas like construction and revolving credit facilities, shorter tenor project finance. Private credit can complement that by providing longer duration capital that aligns with the life of infrastructure assets, and in many cases offer bespoke solutions for more complex financing. So I think about banks and private credit really solving different parts of the same financing puzzle. And just given the sheer scale of the infrastructure investment required over the coming decades, it's going to take all of these different sources of capital working together to meet that demand. So I think you'll continue to see an increase in formal and informal partnerships between banks and private credit platforms.
James Wright: That’s great. Ines, I heard that very clearly, we're friends, okay. That was clear. That was clear.
Ines Serrao: (laughs) We agree.
James Wright: We do. We got to all work together to make this happen. Well, that was really great, Jess. Thank you. You've given us a really good sort of just snapshot about how you're thinking about this space and your new role and how AGI is particularly investing in the space. So thank you. as we wrap, what we like to do each week on the podcast is just think about something that's shifted each of our weeks. Why not, Ines, you kick us off, go on.
Ines Serrao: Thanks, James. So my week has been pretty good so far, no material shifts. But we are recording this the week before Infocast, as you mentioned earlier. And so we are looking forward or bracing. I don't know.
James Wright: (laughs) Definitely bracing.
Ines Serrao: Bracing for Infocast. All jokes aside, as you mentioned, I'm looking forward to warmer weather, but also really looking forward to see everybody in the industry, our friends, our clients, our banks. And it's going to be great to see everybody in Arizona next week.
James Wright: I fully agree, it's gonna be a great week. Jess, what about you?
Jess Thompson: Yeah, I'm going to say daylight savings. I know it's only an hour and I love that it means longer days and warmer weather is approaching. But this small shift seems to just cause a lot of disruption for my family. My kids are out of sorts. My mornings have just been a little bit harder this week. But the 70 degree days that we had earlier here in New York, I think sort of made up for it. So I'm still happy to see spring on the horizon.
Ines Serrao: I'm with you, Jess. Let's make a petition to end this, because I know it's just an hour, but I'm with you.
James Wright: I hear you, that was great. Well, I think I'm going to give a book recommendation this week. So I've actually started a great book called “Prisoners of Geography” by Tim Marshall. It's a really great read, I recommend it. And the quick sort of thesis of the book is it's built around the constraints caused by physical geography, the global leaders have had to operate in throughout history and why geography is really kind of driven the outcome of world events and so forth. So the premise of that sort of struck me this week has been particularly timely as we look at what's happening in the Gulf with a 20 mile stretch of water in the Arabian Gulf that's frankly having a paralyzing effect on global energy markets. So yeah, that book kind of felt quite timely for me this week. It's a great read. I really recommend it. I think it's also, I'll just add on like an interesting time to reflect on then how we think about, you know, the buzzwords that have been pretty topical in our space recently, energy dominance, energy independence, energy security. And, you know, from a policy perspective, we've all seen those have been, you know, pretty prioritized by the administration, but kind of framed away from renewables. When in fact, now more than ever, you can make the case that domestic wind and solar is the very definition of energy independence. So that's, that's not a political point. It's just a reflection of economics and global geopolitics. So anyway, I've been thinking a bit about that this week with that book by Tim and it's a good read. I recommend it.
Jess Thompson: We’ll check it out. Thank you.
James Wright: Alrighty, so I think that's a wrap. Big thank you again, Jess. Great to have you on and we will look forward to seeing everyone next week in Infocast.
Ines Serrao: Thanks, Jess.
Jess Thompson: Thanks so much for having me. Safe travels to Arizona.
Ines Serrao: Likewise.
Outro: Please join us next time on The Energy Shift as we continue to tackle some of the hottest topics in the US energy transition landscape, providing fresh insights and viewpoints to help you shift your perspective.
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