The Strategic Value of Scarcity

After years of rewarding capital-light businesses, we have begun to see a shift in market leadership to businesses that control scarce, tangible assets. We believe this shift is supported by structural forces.

The massive investment in artificial intelligence-related capital expenditures has also underscored the need for infrastructure as power demand increases and bottlenecks emerge. Electrification scales not only through generation but through the grid—generation, transmission and cooling, as well as reliance on the materials and equipment used to build the infrastructure, like copper and gas turbines. As a result, the challenges are local and practical, so companies that control scarce physical capacity have pricing power.

After years of underinvestment in global infrastructure for energy and natural resources, supply is struggling to keep up with the step up in demand, resetting commodity prices structurally higher. The timeline from discovery to production for most commodities can span well over a decade, which suggests to us that supply is likely to remain constrained for several years.

These secular forces have coalesced to shift value from capital-light businesses to businesses characterized by capital- and labor-intensive production and manufacturing, where competitive advantages are rooted in physical property, not intellectual property. Importantly, we believe that mere exposure to real assets is not enough. Selectivity—with a focus on genuine scarcity value and advantageous cost position—remains vital for investors seeking access to companies with the potential for persistent earnings power and resilience.