In every industry, technology is a potentially disruptive or return-enhancing force, and infrastructure is no different.
From revolutionizing how infrastructure assets are designed and constructed to improving how they’re operated and maintained, technology will transform the asset class. To stay apace and optimize portfolio construction, investors must anticipate how technology can affect the assets in their portfolios.
Historically, infrastructure companies have operated in a relatively stable and predictable technology environment. However, recent technological advancements have shifted this reality, affecting how and where infrastructure is used, and which assets stand to lose or gain value. Artificial intelligence is likely to accelerate these changes.
Technological innovation also makes asset life cycles less predictable. Investors may now need to better understand technology and consider that it could make some assets obsolete—if they are not effectively managed. Alternatively, what is considered value-add today may one day be considered core.
Many infrastructure investors have already broadened their target investments beyond traditional core infrastructure—notably, value-add infrastructure that is increasingly revolved around technology-enabled assets or “infratech.” To capitalize on these opportunities and create more sustainable business plans, we believe investors should consider working with partners that can help them step outside their comfort zones to underwrite technology’s effect on infrastructure assets.
Over the years, we’ve partnered with some of the infrastructure investors at the forefront of this change, deploying capital in a variety of sectors that are being redefined by technology. This paper distills these experiences and the forces at work to demonstrate that as an asset class, infrastructure can be on the leading edge. In each instance we explore the technological catalysts and the change they are bringing about.
Technology is changing infrastructure development
Much of the opportunity set today in infrastructure entails either deploying capital toward new greenfield projects or modernizing existing brownfield infrastructure. In either case, technology is fundamentally changing each phase of project development and disrupting the way that infrastructure ecosystems have traditionally functioned.
Disruption and opportunities by sector
In this section, we explore the sectors that are ripe for technological disruption along with the technologies that are catalyzing these changes. Though some of these opportunities might seem far-fetched, we are already deploying capital in them.
Conclusion
As technology transforms how infrastructure fulfills its role, it has altered the economics of traditional assets. As a result, technology-enabled and technology-ready assets are rapidly evolving across infrastructure sectors and subsectors. Portfolio optimization will increasingly be reliant on investors obtaining exposure to future-proofed assets that can enhance returns and mitigate risk.
When combined with traditional infrastructure assets, new and emerging technologies are increasingly providing solutions that enhance the user experience and integrate what were historically disparate pieces of the infrastructure puzzle. Investors should seek investment opportunities that, while at the frontier today, might inform the investment decisions of tomorrow.
We believe technology is revolutionizing every aspect of infrastructure and may become the answer to current infrastructure challenges—improving operational transparency and efficiency; facilitating the transition to climate-resilient assets; unlocking more sustainable business models; and transforming traditional monolithic assets into future-ready, distributed and system-integrated assets that are better able to meet the needs of tomorrow.
By working with a global partner that possesses a large sourcing engine and established partnerships with players across the value chain, LPs can access more technology opportunities that may generate attractive returns over the long run. In the next several years, we expect to see this increased focus on innovation in infrastructure bear fruit. Though the market is nascent and yet to be shaped, those who act sooner may have more opportunities available to them.
