On the road to tech success

Asset owners are waking up to the value-add opportunities in game-changing innovation.

Infrastructure has lagged behind other industries when it comes to adopting new technologies. “Essential service companies often rely on their position in the market for protection, and in some sub-sectors there has been a tendency to stick to how companies have traditionally operated,” notes Adam Ringer, principal at AMP Capital.

But more and more infrastructure owners are now seeking out opportunities to deploy digital technologies to improve their operations and enhance strategic decision-making. “All companies need to adapt, and we are seeing the beginning of this with both the improvement of operations in existing infrastructure businesses, such as automated security at airports, as well as the creation of new infrastructure sub-sectors,” Ringer explains.

Some of the most rapid technological change in recent years has occurred in the field of telecommunications. Larger, more complex and faster infrastructure has had to be developed to support the ever-growing amounts of data consumed by businesses and individuals, and the covid-19 pandemic has laid bare the essential nature of digital infrastructure.

Other emerging sub-sectors are being propelled by market demands and supported by infratech advances. These include tech-enabled financial infrastructure as financial institutions look to outsource key operations to enhance regulatory compliance and save costs. “I believe these trends will only accelerate given the current environment,” says Ringer.

Some of the most advanced infratech deployments have in fact been at traditional infrastructure assets, such as container ports and power distribution utilities, where ‘digital twins’ have helped to enhance safety and drive efficiencies, explains Peter Durante, head of technology and innovation at Macquarie Infrastructure and Real Assets. “Other sectors – from car parks to airports – have also deployed a wide range of monitoring technologies designed to improve the customer experience as well as their environmental performance,” he says.

Infratech’s greatest impact is likely to occur in the field of transport. Natalie Trainor, partner and infrastructure technology specialist at Pinsent Masons, says the sub-sector is being significantly disrupted, and that it is also ahead in its digital transformation journey: “This includes smart motorways, connected, autonomous and electrified vehicles, as well as demand-responsive transport.”

A lifecycle commitment

Infratech is being deployed throughout the investment lifecycle.

During the construction phase, positive disruption is taking place through increased collaboration and efficiency via the use of building information modeling. Monitoring technology is also being employed: machine learning, which helps turn raw data into usable information and insights, is a potential game-changer in terms of reducing the risk of defects. The use of virtual technology and offsite construction will also be important in improving efficiency and safety outcomes.

“Infrastructure managers increasingly recognise the value in building out their in-house technology expertise”

Peter Durante
MIRA

During the operational phase, there is ongoing disruption in the world of asset management. This is being driven by the use of asset information models and other data-enabled processes to improve efficiency, actively manage risks and drive resilience.

Trainor says some infrastructure-focused technology companies have started to thrive, particularly in the areas of asset management and asset monitoring: “This includes SmartMobility solutions, particularly ‘on-demand’ and ‘demand-responsive’ transport such as Uber and local DRT [demand-responsive transport] bus services such as ArrivaClick, but also mobility ‘as-a-service’ solutions, which integrate different modes of transport and related timetables, information and ticketing via digital interface or platform.”

Trainor adds that new insurance models are emerging to respond to smart assets’ ability to manage risks differently: “Additionally, the need for increased convergence is driving collaborative structures as previously ‘siloed’ industries start to work together.”

As infratech’s importance soars for infrastructure owners, the race to recruit relevant expertise intensifies. Ringer says managers are approaching this by hiring specialist talent and embedding an awareness of infratech within existing teams and portfolio company management. He points to AMP’s appointment last March of Tom Preising, a former global operations head at Apple, as a senior advisor.

“Infrastructure managers increasingly recognise the value in building out their in-house technology expertise,” agrees Durante. “From our own experience, we have continued to grow our dedicated technology and innovation team so we can better understand advances in technology and how it may impact our current and future investments. Those insights are already being used to inform our origination, due diligence and asset management decisions, helping to drive performance over the life of our investments.”

Partnership opportunities

Other infrastructure managers are looking to partner with technology companies themselves. “There is a huge opportunity here, with companies eager to thrive and hungry for sustainable investment and contracting models which support healthy collaboration,” says Trainor.

“The right strategy will depend on what outcomes individual businesses are looking for,” she adds. A recent Pinsent Masons survey showed that 68 percent of respondents from infrastructure companies are looking to either appoint a technology provider as a subcontractor or are looking at forming some other type of long-term relationship such as a partnership or alliance.

“We are already seeing examples of technology firms collaborating effectively with the infrastructure sector, with many of the established players becoming key suppliers of infrastructure operators”, says Durante.

Some infrastructure operators are also partnering with technology start-ups, offering them the opportunity to pilot and develop their products. “I think fostering this collaborative culture is an important way in which managers can help create infrastructure that better meets the needs of the communities in which we operate,” Durante adds.

A small number of infrastructure players are taking their engagement with the technology world one step further. InfraVia Capital Partners, for example, has launched a technology growth fund that it believes will help to support its infrastructure portfolio’s growth ambition while capitalising on an explosive infratech trend.

Technology can, of course, bring with it risks. These can feel particularly acute in the context of critical national infrastructure or a cyber-physical system that not only processes information but also involves physical components and automatic input and actuation.

Growing cyberthreats

A fifth of respondents in Pinsent Masons’ survey said concerns about cybersecurity, and other security concerns, were barriers to the adoption of technology in infrastructure. “Data risks go beyond legal and regulatory compliance and include, for example, potential liability for data inaccuracies, the potential impact of data losses and the potential reputational damage for playing with data ethics,” says Trainor.

Haresh Patel, chief executive at technology platform Mercatus, goes further, describing data as the “new uranium”.

“Data protection is and should be of paramount concern to investors and they should heavily diligence a software partner to ensure the data is well-protected,” he says. “They should also make investments in their own cybersecurity firewalls.

“Certain infrastructure investments can generate hundreds and thousands of dollars in revenue per month. Therefore, it is critical for investors to proactively manage each site’s operational, financial and ESG metrics as granularly as possible. An equipment failure, miscalculation in opex, lack of communication or cybersecurity hack can lead to health and safety issues, and significant financial loss.” Bruno Candès, partner at InfraVia Capital Partners, believes the biggest risk in the digitisation process comes from taking a new technology and imposing it on existing processes and organisations, rather than supporting process and organisational change with technology.

His fellow partner in the firm’s new growth team, Guillaume Santamaria, adds that infrastructure owners should only adopt digital solutions when they are proven and robust: “There may be more nascent solutions that are good enough for less critical assets, but the infrastructure industry needs to wait for the right moment to implement these types of technology, otherwise disappointment and, potentially, cyber threat await.”

Finding the right balance

Another key challenge associated with deploying infratech is balancing the rapid pace of the technology’s evolution with the inherently long-term nature of the asset class.

“Long-term success in enabling digital transformation of an infrastructure asset is about having the right structures to allow maximum opportunities for collaboration and technological flexibility,” says Trainor. “Planning for success through robust strategies for data, IP and compliance issues is the best way to ensure that data economies and innovation can thrive for the benefit of customers.”

“When designing a private investor technology platform you have to think about flexibility and self-service that allow future-proofing,” adds Patel, “as investment thesis changes on the fly to adjust to rapid-changing market forces, like climate change. The current pandemic is exposing these needs. Those investing in technology are moving at lightning speed to stress-test portfolios as each day can bring a new ‘black swan’ event. There are a lot of investors relying on legacy methods, leaving them with not enough hours in the day to meet LP demands for real-time assessment and reporting.”

However, Durante believes that in many sub-sectors, it is not an asset’s core technology that changes quickly. Instead, it is typically the layer of technology built on top of the physical infrastructure that advances more rapidly, offering new and more efficient ways to use and deliver core services.

“Ultimately, advances in digitalisation, automation and other infratech can enable infrastructure assets to become cleaner, safer, more efficient, and therefore more valuable,” he says. “Therefore, it is important that infrastructure managers are actively thinking about potential advances in technology and integrating those insights into their approach.”

Next steps

So, what technology advances are likely to prove most transformative for infrastructure over the next five to 10 years?

Trainor believes anything that delivers more value from big data is going to prove disruptive. This will include automation, artificial intelligence, machine learning and analytics. It might also involve live asset information models or digital twins to enable real-time feedback, proactive maintenance, scenario-planning and investment decisions that respond to changing demands and optimise asset value.

“Use of monitoring technology during construction, including sensor and drone technology, for proactive management of construction risks also has the potential to be game-changing in reducing construction risk and encouraging investment in a ‘high-risk’ sector,” she adds.

The technology to support infrastructure operations and data-led decision-making is proliferating at a remarkable rate. The critical nature of the assets may mean that the industry has come late to the digital party, but it is starting to make up for lost time. And it is those managers that are hiring credible internal expertise and forging valuable partnerships with tech companies that are leading the charge.

A regulatory nudge

Future investment in infratech could be driven by more regulation, say experts.

Any new technology needs to take regulatory requirements into account, but this should not necessarily be seen as an inhibitor to infratech. In fact, many new technologies can only achieve the scale needed to be competitive with regulatory support.

“The most obvious example of this is the support given by regulators over the last 20 years to deploy renewable energy, which has helped attract hundreds of billions of dollars of private capital to the sector and made renewables the cheapest source of electricity in many markets,” says Macquarie’s Peter Durante. “Looking ahead, continued interest from regulators in the decarbonisation theme will also be a key enabler for investment into technologies such as low-carbon hydrogen, energy storage and electric vehicles.”

Natalie Trainor at Pinsent Masons agrees: “A probable increase in regulation to deal with the global environmental crisis is likely to be an enabler of increased investment and innovation in the adoption of infratech, as we look to improve the productivity, energy efficiency and carbon performance of our new and existing infrastructure on a massive scale.”