As Europe accelerates its transition toward a greener and more digital future, infrastructure investment has become a cornerstone of this transformation. However, a funding gap persists in the mid-market segment – an area that plays a critical role in scaling up transformative projects. “Investments in energy, digital infrastructure, and transportation are essential to securing future economic growth and sustainability,” states Harold d’Hauteville, Head of Infrastructure Equity Europe at DWS, in an interview in Stockholm.

The Evolution of Infrastructure Investment

Infrastructure has traditionally been valued for its stable, long-term cash flows and defensive risk profile. As the sector has matured, returns have compressed, and investors are increasingly moving up the risk curve.

“In 2005-2006, early operating renewable energy projects traded at double-digit returns, as the risk level was not well understood by the broader market. Today, investing in an operational solar parks or wind farms in Europe yields around 6-7% in the current interest environment,” says d’Hauteville.  The decline in expected returns is partly due to improved risk assessments, lower financing costs over the last decade, and increased demand from long-term investors. This compression has driven a shift toward core-plus and value-add strategies, where active asset management and selective risk-taking are critical to generate attractive returns.

Infrastructure: An Untapped Opportunity

DWS inhouse analysis estimates that EUR 6 trillion is needed by 2030 to reach Europe’s key climate and digital transformation goals. Part of this will be EU financed, leaving an investment gap of around EUR 2.5 trillion. Private capital has an essential role to channel funds to SMEs – important players in the transformation but often underserved by traditional capital markets. 

Europe’s ambitions for energy transition, industrial competitiveness, and digital infrastructure partly relies on strategic infrastructure investment. While the EU’s regulatory framework may appear heavy, it offers long-term policy stability. “Europe moves slowly but predictably. Once policies are established, they don’t reverse overnight, unlike shifts we’ve seen in the U.S. with the Inflation Reduction Act for example,” he notes. This regulatory predictability offers infrastructure investors a stable environment for long-term capital deployment.

Despite robust infrastructure fundraising, most capital remains concentrated in large-cap funds. Mid-cap assets, those in growth phases but with potential to evolve into core assets, are often overlooked. d’Hauteville sees this as both a structural challenge and an untapped opportunity.

“Large-cap funds attract most capital, leaving mid-cap infrastructure assets underfunded. Yet, these are critical for Europe’s transformation, serving as steppingstones to larger, institutional investments,” he explains.

DWS is strategically focused on this segment, investing in mid-market infrastructure with the intent to scale these projects. “Our role is to de-risk and grow mid-cap assets, transforming them into attractive opportunities for direct investors such as pension funds, but also to large-cap funds. This transition phase is vital for Europe’s long-term competitiveness,” d’Hauteville adds.

The Nordic’s Role in European Electrification

The Nordic region, long recognized for their stable investment climate, strong credit ratings, and liberalized economies, is an attractive destination in Europe’s energy transition according to d’Hauteville.

“The Nordics hold an advantage: abundant renewable energy resources and available land. Hydro and wind power are central to Europe’s electrification strategy, and as interconnection capacity expands, the Nordics will play an important role in balancing the continent’s power grid.” 

Beyond electricity production, the region’s robust digital infrastructure enhances its appeal. “Despite its geographic periphery, the Nordics have developed a highly advanced digital network, making them an attractive location for data centers,” he notes. This combined with stable regulation, strong economic fundamentals, and abundant energy makes the region an interesting alternative to other competitive markets.

Focus on Growth Segments

DWS targets mid-cap infrastructure across key sectors, including transportation, digital infrastructure, and energy transition.

• Transportation: Electrification of public transit remains a priority, offering stable, long-term returns. “Public transport infrastructure, particularly electrified public transit, is resilient to economic cycles and presents strong investment opportunities,” d’Hauteville notes.
• Digital Infrastructure: With the rise of artificial intelligence and corporate digitalization, demand for data storage and processing continues to grow. DWS focuses on regional colocation facilities, offering diversified risk profiles. “We target 5-10 MW data centers serving enterprise clients like corporates, hospitals and local administrations. These assets offer diversified risk profiles compared to hyperscale data centers reliant on a single tenant,” he explains. 
• Energy Transition: As Europe seeks greater energy independence, niche opportunities in biofuels, biogas, and bioethanol are emerging. “These investments contribute both to CO₂ reduction and energy security, aligning with strategic EU objectives,” says d’Hauteville.

A Call for Strategic Capital Allocation

As Europe navigates the complexities of decarbonization, digitalization, and industrial competitiveness, investments in infrastructure remain the backbone of its transformation. But success will depend on more than the volume of capital. “For Europe to remain competitive on the global stage, we must invest wisely and not oversee mid-cap assets to bridge the existing funding gap. The European transformation requires not just capital, but the right allocation of capital and infrastructure funds can contribute to this,” d’Hauteville concludes.

Find out more about ‘The transformation of Europe 

Further reading from DWS at HedgeNordic:

• Bridging the €2.5 Trillion Gap: Private Sector Key in Europe’s Transformation – HedgeNordic
• The Rise of Private Lending and the Funding Opportunity for European Transformation – HedgeNordic

*Forecasts are based on assumptions, estimates, views and hypothetical models or analyses, which might prove inaccurate or incorrect. No representation or warranty is made by DWS as to the reasonableness or completeness of forward looking statements. No liability for any error or omission is accepted by DWS. Opinions and estimates may be changed without notice and involve a number of assumptions which may not prove valid. Past performance is not a reliable indicator of future returns. Forecasts are not a reliable indicator of future performance.

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