There is a “definite” need for asset managers to collaborate more closely to adapt to the rise of disruptive technology, according to QIC’s head of global infrastructure.
Speaking at the Infrastructure Investor Melbourne Summit today, Ross Israel said more collaboration would be required to better educate stakeholders – customers and regulators included – on what the implications of technology are.
“We have to educate customers on what is required, [and we have to] educate governments and, even more so, regulators. In some jurisdictions, regulators have lagged the nature of customers,” he said. “Over the years we’ve always had a high level of change. However, this change occurred over a longer time frame, allowing users to acclimatise. It may not be the case now.”
This rapid pace of technological change provides both risks and opportunities to investors, Israel said, noting that infrastructure companies are typically slow adopters of new technology. “A lot of management teams are fairly risk-averse because of their incumbency position and because they’ve been provided with a lot of regulatory cover,” he said.
Israel also emphasised the need for managers and investors to assess their assets at an overall portfolio level, as well as on an individual asset basis, and questioned whether the models used by investors in the past would still be applicable in the future.
“With technology we see we can extend asset lives, as opex is being reduced by a number of measures,” he said. “The more challenging aspect is on the revenue line. Is your asset still a price maker or is it going to become a price taker?
“There used to be high barriers to entry, but as customers become more empowered with data and digitalisation, they’re going to challenge infrastructure owners to be much more responsive in both a demand sense and a timeliness sense. This will see increased customisation and tailoring of the service.”
Transport would be one of the main sectors disrupted by this trend, Israel argued, suggesting that mobility as a service, where various forms of transport are integrated into an on-demand mobility package, could come to replace mass transit as we know it in many urban centres.
“All options would be available to the customer and it will be more customer-related. The key drivers of this are urbanisation and quality of life. In the US, congestion is costing $72 billion per annum. In Los Angeles, commuters spend 102 hours a year stuck in traffic. The challenge for us [as investors and managers] is unlocking a response to those two key themes.
“This is a fundamental change. You’re going to have a combat zone between incumbent owners and those looking to disrupt them with different models.”
That would have very concrete implications for investors themselves, he said. “Is the business model still going to be relevant for the same level of returns like we’ve seen in the past?”