Financing the infratech (r)evolution
Technology has been reshaping traditional infrastructure assets for some time, but the pace of change is set to accelerate in the next decade.
It is imperative that fund managers and investors keep up and support the innovations that will ultimately ensure their portfolios remain relevant, resilient and competitive. “The biggest driver for infrastructure investors’ interest in infratech solutions is the fear of an illiquid asset that is underperforming – or, even worse, ending up with a stranded asset,” said Matt Morgan, managing director at Infratech Growth Partners, in an interview with Infrastructure Investor last year.
Yet there is a clear message in this report that some LPs are doing better than others. Those that have adopted a proactive approach are taking different routes to capitalising on Infratech. Some have set up their own venture capital arms, some prefer to invest in growth-stage tech companies, while others are forming partnerships with tech companies.
One of the biggest advantages of technology for GPs and LPs is its ability to capture more granular data on the assets in their portfolios. Cameras, sensors and facial recognition technology, for example, can reveal a wealth of information on how an asset is used by customers.
“Investors that take a data-driven approach are able to confidently assess and value potential acquisitions”
The data gathered can help spot where performance gains or cost-savings can be made. It can also offer a window into trends, thereby allowing prospective investors to make informed decisions on which projects to back in the future. “Investors that take a data-driven approach are able to confidently assess and value potential acquisitions,” says Gareth Brown, chief executive of Clir.
Technology and sustainability are arguably the two key mega themes dominating the private funds market. Throughout this report there is evidence aplenty of the core role technology is playing in driving forward infrastructure’s green agenda.
Energy is perhaps the most obvious illustration of this in practice, where tech is enabling the sector to move closer to achieving its net zero carbon targets by replacing fossil fuels with renewable sources such as solar, wind and hydrogen.
“Energy tech will provide critical solutions in measuring, monitoring, reporting and, where appropriate, mitigating, capturing and reclaiming carbon footprints,” says industry expert Jeffrey Altman.
All stakeholders in the infrastructure space should have this at the forefront of their minds. For as technology advances and the world becomes more digitally interconnected, assets are ever more vulnerable to attacks, which can be costly and reputationally damaging for owners.
Stakeholders in the infrastructure sector citing a lack of understanding as their main barrier to adopting technology, according to Pinsent Masons’ Global Infrastructure Survey 2020
As Aon’s head of cyber M&A, Ian McCaw, and the firm’s head of infrastructure, Charlie Garrood, highlight, such events are “devastating” to the sector with the potential to disrupt transport networks, energy and water supplies and communications to millions of users worldwide.
McCaw and Garrood argue this makes it “incumbent on investors to leverage new cyber-enabled strategies”. One could argue it is a social obligation.
Technology’s ability to capture information on the general public’s every move can raise concerns about how private companies are using such data, as well as whether they have adequate measures in place to protect public data from cyberattacks.
Private markets investment professionals, including in infrastructure and renewables, reporting that the coronavirus has influenced their reprioritisation on investment management technology, according to Oxane Partners’ report Covid-19 and the Private Markets
This issue is highlighted by Andrew Claerhout, senior adviser at the Boston Consulting Group, who asserts that maintaining a social licence to innovate should be among investors’ top priorities. Jonathan Winer, co-founder of Sidewalk Infrastructure Partners, also emphasises the need for tech companies and private capital to work with the public sector when “introducing new technologies into existing urban environments”.
Integrating technology – whether it’s to improve operations across the investment management business itself or enhance the performance of assets in the portfolio – and interpreting Big Data demand very different skills and a new way of thinking not traditionally associated with GPs and LPs.
This fact is not lost on Ardian’s senior investment manager, Pauline Thomson. “We have recently felt the need to bring additional skills on board, “ she says. “Historically, we have all had business, finance or engineering backgrounds, but we recognise that today’s landscape calls for a very specific skillset.”