This article is sponsored by QIC
Tell us what your big picture approach is to infratech?
Leisel Moorhead: The transformative impact of digital technology is one of the key megatrends for the infrastructure asset class. And with a A$14 billion ($9.7 billion; €8.62 billion) portfolio of long-duration assets, it is important to continuously look at how technology disruption is interconnecting with other megatrends such as customer centricity, societal changes, climate risk and sustainability.
These megatrends reinforce the need for infrastructure businesses to continually review and improve their resilience and adaptability. By leveraging technology, these essential service businesses can drive increased productivity into the economy and into local communities.
So, our approach is to look at how existing and emerging technologies can drive new investment opportunities and better manage risk. We also look at how they can support our active asset management strategies through, for example, asset optimisation, safety enhancement and growing new revenue streams.
Given the pace of technological advancement, how do you identify and invest in the innovations that will ultimately prove transformative?
LM: Our approach to infratech has been built on three pillars. First, undertaking a great deal of research and thought leadership, setting out how we view the opportunities and risks associated with emerging trends. We collaborate with universities including Stanford in the US and UNSW in Sydney, so we can stay abreast of the latest tech developments, given the speed of innovation across the main infrastructure sectors.
Another important part of our approach is our team. We have a sector-centric approach, focused around transport, energy and utilities, and public private partnerships/social. Through deep sector experience, we ensure our teams understand not just the businesses, but how technologies can create both risk and opportunity across an industry value chain.
Finally, we have a dedicated in-house technology and innovation specialist, in Tibor, who works closely, not only with the sector teams, but also with our portfolio companies to help identify, assess and implement tech solutions.
So, what emerging technologies are proving particularly influential?
Tibor Schwartz: We think about the value infratech can bring from both the perspective of individual assets and the opportunities it creates for a sector. But, with a portfolio of 19 assets, we can also look across sectors – there may be technologies that have been well adopted in one sector, that are yet to be adopted in another.
A good example is the use of airborne inspections in the electricity distribution industry, where multi-sensor technology, combined with artificial intelligence, automatically finds faults along power lines, enabling a better standard of service for customers, and more resilience for asset operations. We operate in that sector, but, at the same time, we are also invested in ports. It’s a completely different industry, but the problem of inspections is shared. So, we are using the advanced inspection processes in electricity distribution and emulating them in transport infrastructure.
Wherever you can provide automated information gathering combined with analytics to tell you the condition of assets in real time, ideally also with the possibility of some predictive analytics to allow for condition-based maintenance rather than a fixed inspection schedule, that is going to prove really valuable.
How do you work with portfolio company management to instil your infratech ethos?
TS: Understanding the capabilities within different organisations and what is required to effectively support innovation management is just as important as, if not more important than, the technology itself. Having an organisation that is open, inquisitive and able to challenge themselves about these things, is integral to value and continuous improvement. That is something we always strive to foster through the likes of board directorships and KPI setting at the management level. Improving the innovation culture of assets under QIC’s management is integral to effective technology adoption.
What about some of the risks associated with infratech, particularly cyber security?
TS: As we increasingly operate assets that are benefiting from improved connectivity and the internet of things, that often raises the risk of cyberattacks. To address this, we are leading a cyber risk management cooperative forum, which currently comprises nine different organisations across Australia and New Zealand. As a fund manager, we have the advantage of being able to look across our portfolio and share different approaches that are being adopted in different situations. For example, where organisations have been exposed to some kind of cyberattack, we are able to determine what an effective response looks like in terms of the recovery process and share that information in a way that brings everyone to a higher level of risk management maturity. We have particularly noticed that the covid-19 situation has heightened cyber risk, so our activity in this area is extremely important.
To what extent can regulation be a barrier to the adoption of infratech?
Sam Pearce: The traditional utility model is undergoing a great deal of change, and new technology is one of the major drivers behind that. It is vital, therefore, to bring the regulator along on the journey. And it is not just about looking in the rear view mirror. You also need to look ahead at the types of technology investment that regulated utilities will need to make to ensure they continue to meet customer needs going forward.
TS: As we look at emerging technologies, and specifically hydrogen, fund managers will need to play a role in effectively shaping the regulatory frameworks around that. This will be particularly important as decarbonised transport evolves. There are opportunities, but also challenges, as to how the renewables market will develop in the future and it is vital to play an active role in that process.
How do you see the infratech space evolving and are there any other significant challenges you are likely to face along the way?
LM: There is no doubt that technology will continue to be developed at a remarkable pace. But infrastructure businesses can have a tendency to stick to the status quo – to consider the way things have historically been done, as the way they should be done going forward – so it is important to create a culture of innovation going forward.
One of the roles we can play as an asset manager on the board is to foster a culture in workforces and management teams that allows innovative ideas to surface, be tested and then implemented. Underpinning that is a drive for continuous improvement, but also a willingness to take an appropriate level of risk to explore innovation. Technology is important, but to really drive value you need that cultural shift in your people as well.
Innovating deal structures to promote long-term value creation
Leisel Moorhead on how QIC has approached this in the transport sector
“A long time ago, we identified changing mobility trends as a potential disrupter for the way people use transport infrastructure assets and, in particular, parking assets. When we acquired MasParc, a parking concession at Northeastern University in Boston, we recognised that our investment approach would need to take the impact of ridesharing, electric vehicles, autonomous vehicles and other mobility-as-a-service technologies into account. As a result, one of the innovative aspects of this deal was the collaborative approach to the negotiation of the concession agreement.
“In the near and medium term, we didn’t expect a material impact from tech disruption. But over the course of a 50-year concession, both we and Northeastern recognised the need for flexibility to allow for tech developments and changes in customer behaviour. As a result, this was the first parking concession, that we are aware of, to expressly provide for that evolution of mobility solutions, allowing for the preservation of value and repurposing of the concession in the future.
“Another aspect of the investment was looking at how we could add value to the business through technology. We explored tech upgrades including the integration of mobile technologies and automated payment. It was all about improving the customer experience and managing capacity, but importantly, those technologies also allowed us to capture and analyse data, which will support future value creation and optimise assets today.”
Supporting the decarbonisation process
Sam Pearce explains the critical role technology is playing in the energy and utilities sector
“The primary objectives within the energy industry today are long-term sustainability, cost effectiveness and the reduction of carbon emissions. We are clearly seeing new technologies driving the replacement of fossil fuels with renewable sources, including not only wind and solar, but also the use of hydrogen as a fuel source.
“We are also increasingly seeing digitisation and data analysis – essentially the adoption of artificial intelligence – being used to improve energy asset performance. For example, Pacific Energy Australia, which we acquired last year, has a distributed generation fleet of more than 400MW across Australia. The company recently made its own acquisition of a business focused on satellite power systems. These are essentially small-scale power generators embedded into the distribution network, comprising a combination of localised gas- or diesel-fired generation, local solar or wind, and increasingly also a battery.
“The tech influence there comes in two parts. First, there is the ability for that technology to be available at a price that makes sense. Second, technology must get all those pieces to talk together in a comprehensive way that continues to satisfy customer needs.
“Technology is also being used for performance optimisation, and that relates not just to energy companies but also other utilities such as water. There is a massive amount of information that is gathered across utility assets of all types that can be used to manage the maintenance programme, and to minimise scheduled and unscheduled interruptions to customers. It enables you to respond quickly to failures within the network and effectively re-route supplies to continue to satisfy customer needs.”
Leisel Moorhead is a partner, Tibor Schwartz is a senior advisor and Sam Pearce is a partner in QIC’s global infrastructure team