Why aren’t infra investors running non-physical infra?

Infratech hints at the possibilities but its use-cases are still mostly tied to physical assets. For now, Big Tech holds the keys to the digital kingdom.

“High-asset intensity and stable cashflows are the typical characteristics of infrastructure investments.”

The above quote, from a well-known industry figure, is a good summary of what investors are usually looking for from private infrastructure investment – hard assets with high barriers to entry providing essential services that generate steady, long-term cashflows on the back of best-in-class asset management.

That’s been the story powering the asset class for the past two decades. It’s also likely to remain a key driver for many years to come, even if some infrastructure investments have always struggled to neatly tick all those boxes.

The problem? It leaves out a different kind of infrastructure, one that promises to become increasingly important. Ideally, we’d call it digital infrastructure, but that will inevitably conjure images of data centres and fibre optic investments. A better, if less elegant, moniker might be ‘non-physical infrastructure’ – or infrastructure that is provided digitally.

Try googling ‘Google + utility’ and it won’t take you long to find articles arguing “it is time to treat tech platforms as we do trains, telephones and electricity”. Or pull out your iPhone and marvel at how essential it is to your life and what a great piece of digital infrastructure iOS is. Then go on to read about the App Store’s most recent lawsuit, and note how complaints about the fees Apple charges app developers echo accusations levelled by clients against infrastructure owners for making use of their “unfettered market power”.

Swap ‘hard assets’ for ‘digital’ in our earlier definition, and it won’t be hard to find more examples of non-physical assets with high barriers to entry providing essential services that generate steady, long-term cashflows on the back of best-in-class asset management. More importantly, it is highly likely that, in the future, some of the most interesting infrastructure investments will not be backed by hard assets.

Isn’t this what infratech is all about, though? Not quite – or at least, not yet. Take this week’s investment by Ardian in Wintics, a French technology company using data to optimise traffic management. Head of infrastructure Matthias Burghardt said he looked forward to leveraging Ardian’s partnership with Wintics “to create strategic synergies with our portfolio companies”, reflecting the most common use-case for infratech solutions.

But what if Wintics were to grow to become the Google of traffic management solutions? A piece of digital infrastructure so powerful, so essential and so omnipresent, that it would start to exude many of the characteristics we associate with traditional infrastructure investments.

Why wouldn’t that sit in an infrastructure fund?