More Than Roads and Bridges: Investing in What Keeps the U.S. Running

The Trump administration's current review of infrastructure spending introduces a cloud of uncertainty. However, at Nicola Wealth, we continue to see meaningful investment opportunities supported by the ongoing strength of the U.S. infrastructure sector. Substantial investment activity in megaprojects, despite the limited deployment of funds from the Infrastructure Investment and Jobs Act (IIJA), highlights the continued need to address aging infrastructure that is critical to the functioning of society. The anticipated release of the remaining federal funding creates attractive opportunities we are actively exploring. The following outlines the current pause in disbursements and the steps we've taken across both private and public markets.

Trump 2.0

The start of the Trump 2.0 presidency has introduced a cloud of uncertainty over U.S. government infrastructure spending. While President Trump maintains a generally “pro-business” stance, proposed reductions in spending appear to be driven by broader political and fiscal concerns. Interest rates, inflation, and government debt are all higher now than they were at the beginning of his first term.

Immediately following his inauguration, Trump issued an Executive Order pausing the disbursement of funds appropriated through the IIJA and the Inflation Reduction Act (IRA), pending the completion of a 90-day review. Both bills were signed into law under the previous Biden administration. The IIJA committed $650 billion to renewing existing infrastructure and another $550 billion to incremental new infrastructure, including roads, bridges, power, rails, broadband, and water. The IRA allocated $370 billion toward investments in renewable energies.

While we do not hold a formal view on the likelihood of full legislative reversals, we expect changes to be limited in realigning spend versus broad-based rollbacks. Notably, Republican-led states are among the major beneficiaries of the funding. According to Bernstein, seven states receiving the most IIJA support voted Republican, and more than 70% of large-scale wind and solar projects announced are located in Republican districts.

The Case for Continued Investment

There’s a reason these spending bills were enacted, and why they are so large. U.S. infrastructure has experienced decades of underinvestment. For example, around 70% of U.S. transmission infrastructure—the grid—is more than 70 years old. While areas like solar, wind, and battery storage often attract more attention, the grid is the critical link that connects electricity generation to the end users who rely on it every day.

Of the IIJA’s $73 billion allocated to power infrastructure, more than $35 billion has been designated specifically for upgrading the grid, including specific funding to improve its resilience. Even so, these programs, whether maintained or scaled back, represent a fraction of the total investment needed to enhance the grid.

At the same time, market volatility is increasing the financial pressure on large, publicly listed utility companies that need to raise capital to fund these projects. In January 2025, starts on megaprojects still represented a significant portion of U.S. project spending, even though only 34% of IIJA funds had been deployed per Bernstein. We believe this highlights the potential additional tailwind that could come from the release of the remaining funds.

Nicola Wealth Exposure

Certain funds and LPs at Nicola Wealth hold exposure to both the infrastructure assets under development and the picks and shovels players that support their construction. The Nicola Global Infrastructure LP’s investment philosophy is to invest in predictable cash flows from contracted or monopolistic businesses that deliver essential services. The Nicola U.S. Equity Income Fund’s investment philosophy is to invest in quality businesses at reasonable valuations. Recent market volatility has created selective opportunities to increase exposure within both strategies.

Nicola Global Infrastructure Limited Partnership (NGI)

In January 2025, American Electric Power (NASDAQ: AEP), one of the largest electric utilities in the U.S., announced the sale of a $2.8 billion stake in its transmission business to private infrastructure investors KKR and the Public Sector Pension Investment Board (PSP Investments). Rather than raising capital in the public markets, AEP opted for a private transaction to help fund its $54 billion five-year capital investment plan.

AEP’s transmission business earns a consistent, regulated rate of return set by the Federal Energy Regulatory Commission (FERC), based on the value invested in its transmission assets rather than the volume of electricity transmitted. This structure supports predictable cash flows from a business that operates as a regulated monopoly within its geographic footprint to deliver an essential service (electricity). These types of infrastructure characteristics align with NGI's strategy and support our investments in U.S. transmission within our portfolio.

While public market volatility can present challenges for companies needing to raise capital, it can also create compelling entry points when valuations decline.

Nicola U.S. Equity Income Fund

United Rentals Inc. (NYSE: URI), the largest global rental company operating primarily in the U.S., serving industrial (including power and utilities) and construction end markets. The business exhibits several attractive qualities:

1. Meaningful switching costs – Rental equipment typically represents just 2%-3% of total project costs, but plays a critical role in timelines and project efficiency.
2. Scale advantage – URI benefits from broad offerings, purchasing power, and a strong base of enterprise customers that tend to be less price-sensitive.
3. Room for growth -The rental market is still fragmented, offering potential consolidation and increased market share.

We believe URI is well-positioned to benefit from its competitive advantage in securing megaprojects, where contracts are generally awarded based on track record, scale, consistency, and technology, factors that often outweigh pricing alone. The opportunity adds an incremental layer of multi-year growth.

While URI has long been on our watchlist, we had previously been cautious due to valuation concerns given its cyclical and capital-intensive nature. However, following a broader market re-rating driven by macroeconomic and geopolitical factors, the stock declined by 37% from its recent all-time high. We used this dislocation to initiate a position at what we believe to be a more attractive entry point.

Looking at Infrastructure as a Strategic Opportunity

Despite policy shifts and market volatility, U.S. megaproject spending remains resilient and continues to create compelling opportunities across both public and private markets.

By remaining disciplined in our investment approach, we are identifying infrastructure and construction-related assets that offer strong fundamentals and the potential for attractive, risk-adjusted returns. Should the remaining federal funding be released, it could provide an additional tailwind to a sector already supported by long-term structural demand.

Our focus remains on building resilient portfolios that are positioned to navigate evolving conditions while capturing opportunities tied to essential economic drivers.