There is a strong new paper out about how private socializes risk via the (captive) insurance channel, with implications for data center capex, given the (now) greater than 50% reliance on external financing.

I encourage you to read the paper it in its entirety. It aligns with comments I have made about this in the past, and that I expanded on in an interview out next week. It also aligns with recent reporting by Bloomberg (Private Credit and Data Center Wraps Are 2008 Redux) on how subordinated capex tranches are being sanitized and resold.

A key paragraph from the piece on the arbitrage is being run, and its consequences:

Some data center financing-specific points I'll make:

• AI capex has a much larger financing "reservoir" than hyperscaler cash flow alone.
  • Private credit, insurer balance sheets, project finance and reinsurance can sustain infrastructure spending, while spreading the risk in unexpected ways.

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