D is for disruption

If you’re in the infrastructure business, there’s arguably no greater buzz than attending the Berlin Summit.

Of course, we would say that, wouldn’t we, considering we organise it? But even if you discount the natural immodesty of a proud parent, we invite you to take a look at the video interviews shot at the event. Look at the people in front of the camera; take a look at the 800-strong rush in the background – what you’re seeing is a veritable who’s who of the infrastructure industry.

BlackRock’s Anne Valentine Andrews captured it best: “This is such a global asset class. But having everyone in one place and literally bumping into them as you walk around – it’s been amazing.” That, in a nutshell, is what it feels like to be in Berlin.

So what was on the mind of the industry’s leaders at a time when infrastructure is attracting record levels of attention? Several things, of course, but if we had to select one key theme, we would say disruption was front and centre. At times, the ghost of Airbnb seemed to literally be haunting the Hilton, as investors wondered which infrastructure sub-sectors were ripe for that kind of disruption.

Antin Infrastructure Partners’ Mark Crosbie asked participants of a day one panel on long-term trends in infrastructure whether there was a risk of an Airbnb in parking.

QIC’s Ross Israel posited that automated vehicles could lead to a phase-out of inner core parking. Andreas Huber said EQT is now hiring more people with a technology background. Everyone agreed that investors need to be ever-more vigilant, especially considering infrastructure’s long life.

Disruption is not just about predicting what’s around the corner, though: often, it’s about recognising what’s already staring you in the face. Lord Jonathan Evans, former director general of the British Security Service, drove that point home in his day two opening keynote speech when he talked about the clear and present danger of cyber-attacks.

Infrastructure, Lord Evans said, is especially vulnerable given its strategic importance, with sophisticated, non state-sponsored cyber criminals emerging as particularly threatening. The fact that many infrastructure assets are old makes them even more exposed. Needless to say, a major high-profile security failure at a privately owned infrastructure asset could have tremendous implications for the industry as a whole. Investors beware.

But of course, disruption is not just about risk – it’s also about opportunity. Take a look at the energy sector, where a considerable amount of infrastructure dealflow can be found. Pretty much all the participants in our day two panel on global energy identified storage, particularly when coupled with renewable energy, as a promising investment opportunity.

In emerging markets, where grids are often non-existent, the potential of this pairing is nothing less than momentous. Here the analogy is not so much with Airbnb but rather with the mobile phone revolution in places like Africa and India.

The only remaining question with storage is not ‘if’ but rather ‘when’. Pioneers like SUSI Partners’ Tobias Reichmuth will tell you the time to invest is now. Others will argue it’s best to hold out for a while. All of them will end up investing in storage – we’d wager sooner rather than later.

Finally, there’s arguably no greater disruptor to the asset class than having record amounts of money available for it but not enough good quality assets to invest it in. Sir John Armitt addressed infrastructure’s supply-demand imbalance in his opening keynote speech: “There is no shortage of funds, but there is a shortage of good solid projects [with] revenue streams protected from government interference.”

The good news? The tide may be turning. As S&P’s Mike Wilkins highlighted: “In 2015, more money was actually spent on transactions than funds raised. That shows that maybe the cycle is changing and there is enough supply for demand.”

We can’t wait to pick up that discussion at next year’s Summit.