Themes of the year: Digital infra comes of age

As the world learned to work from in 2020, the importance of reliable digital infrastructure became apparent, making it an increasingly attractive asset for investors.

As Matt Evans, global head of digital infrastructure at AMP Capital, told us for our Future of Infrastructure report earlier this year: “Even a year ago, the case for fibre to the home was highly questionable. Now it’s a no-brainer.”

Evans’ example lays out in simple terms what most infrastructure investors now accept to be true: that the impact of the coronavirus pandemic, which led to a mass work-from-home experiment like the world has never seen, has cemented digital infrastructure as an essential asset that we need for our lives and economies to function properly.

With some still expressing doubts in recent years about asset types like fibre-to-the-home or data centres, questioning whether they really belonged in infrastructure portfolios, they are beginning to look more like core infrastructure assets than they ever have before.

This trend isn’t going to reverse. Despite the rapid development of covid-19 vaccines, it will take some time for the virus to be defeated, if it ever definitively goes away at all.

The Pandora’s Box of remote working has been well and truly opened. While many companies had already begun embracing the practice before the pandemic, pretty much all companies that could do it now have experience of trying it.

Employees prefer it in many cases, at least to the point where they want more flexible working options from now on, meaning that our communications and data infrastructure – whether that’s cell towers, servers, fibre optic cables, you name it – have suddenly become more vital than ever to the smooth running of business.

And in the world of funds management, both GPs and LPs alike have gotten used to Zoom fundraising and due diligence this year, even if they don’t love it and find it’s not ideal. It might just be good enough in some cases to replace a few business trips each year – a phenomenon that is unlikely to be unique to this industry.

Again, that will mean the quality and resilience of the digital infrastructure underpinning it all will become more important, and more desirable, than ever.

This was illustrated neatly by Aware Super’s ultimately doomed bid to buy out ASX-listed Opticomm this year in an attempt to secure a place at the table of Australia’s digital transition in one fell swoop. Expect to see more deals of that magnitude attempted and completed in other markets too.

Data truly is the world’s new commodity, with the internet and access to it now the fourth utility – it would be unthinkable for many to live without it now.

Digital Colony was the only specialist GP dedicated to digital infrastructure in our Infrastructure Investor 50 ranking this year, something that will surely change in the years ahead as more capital seeks to target this asset class, in the same way that other sub-sectors like renewable energy have boomed in the last few years.

In a challenging year for many types of infrastructure assets, 2020 was the year that digital infrastructure came of age as a vital asset type that will be attractive to investors and resilient to many types of economic shocks.