Paul Kudrowski

There is no reward for spending money.

If I'm a large private equity firm, if I'm any kind of large capital allocator, anywhere else but in data centers, which is why if you watch the announcements from places like BlackRock or from Blue Owl or from any of the large private equity firms or private debt providers, the thing that they're making the most noise about and are most excited about are these giant multi-billion dollar checks they're writing towards data centers.

And so, again, the same phenomenon.

If I'm a small manufacturer and I'm hoping to benefit from the onshoring of manufacturing as a result of tariffs, it's leaving aside whether they're good or bad economic policy, but I want to benefit from it.

So I go out trying to raise money with that as my thesis.

The hurdle rate just got a lot higher, meaning that I have to generate much higher returns because they're comparing me to this other part of the economy that will accept giant amounts of money, huge checks I can write for this to data centers.

And it looks like the returns are going to be tremendous because look at what's happening in AI and the massive uptake of open AI.

So I end up inadvertently starving a huge slice of the economy yet again, much like what we did in the 1990s.

Yeah.

And it's even more insidious than that.

And this requires some inside baseball.

And it's insidious because let's say you're Derek's giant private equity firm and you control, I don't know, let's say you've got $500 billion burning a hole in your pocket.

What do you not want to do?

I do not want to allocate that money, one $5 million check at a time to a bunch of manufacturers, because all I see is a nightmare of having to keep track of all of these little companies doing who knows what and everything else.

What would I like to do?

I'd like to write $30, $50 billion checks.

I'd like to write a small number of huge checks.

And this is a dynamic in private equity that people don't understand, that capital can be allocated in lots of different ways.

But the partners at these firms do not want to write a bunch of small checks to a bunch of small manufacturers, even if the hurdle rate is competitive, even if they're operating at a level where they can compete against what the perceived return is.

on data centers because i'm a human i don't want to sit on 40 boards right and so you have this other perverse dynamic this other perverse dynamic that even if everything else is equal it's not equal so we've we've put manufacturers who might otherwise benefit from the onshoring phenomenon at an even worse position in part because of the internal dynamics of capital