While data centres and AI-related infrastructure have drawn significant interest, investment executives believe opportunities are plentiful in other areas of the digital economy.
Speaking to InvestorDaily, Dan Farmer, chief investment officer at MLC Asset Management, described a preference for the economic digitisation trend beyond data centres, including exposures to fibre networks, telecommunications towers, electricity transmission lines, and distribution networks.
“In our view, data demand will continue to increase driven by cloud computing, the internet of things and working from home,” Farmer said, with the now “essential” service of data access providing a tailwind for infrastructure investments in this domain.
MLC’s diversified infrastructure portfolio of over 80 underlying assets holds roughly 50 per cent in “new infrastructure”, he explained, alongside more traditional infrastructure assets like airports, utilities, and roads.
“All things being equal, we believe that businesses involved in economic digitisation and renewable energy, on balance, offer better risk-adjusted returns as part of an infrastructure allocation within a diversified portfolio, providing greater upside potential as they are driven by long-term structural trends,” he said.
Looking at the recent attention given to data centres, Farmer said there are indications that considerable growth assumptions are being baked into the valuations of these businesses.
“Consequently, another way of accessing this theme would be to invest in adjacent areas that are involved in the rollout of fibre connecting data centres to data centres, and then data centres to homes,” Farmer said.
Ragu Sivanesarajah, co-portfolio manager for the Tribeca Asia Infrastructure Fund, also observed that data centres, which have long been a part of the fund’s portfolio, witnessed significant attention in 2024.
Recent figures suggest more than $22 billion was invested globally in these assets in the first five months of this year, compared to $36 billion over the course of 2023.
“Really, in the last six months, that’s what everyone has been talking about. Not just in the news, but most of our investor questions – I would say about 85 per cent of them – are about data centres,” he told InvestorDaily.
According to Sivanesarajah, while data centres are likely to continue to enjoy the tailwind of artificial intelligence, a number of other infrastructure subsectors could be flying under the radar.
Healthcare infrastructure, for example, is going to require significant capital to meet the growing needs of ageing populations in both developed and emerging markets, he pointed out.
“There are some significant barriers to entry there. Not only do you need a lot of capital, you need a lot of specialist knowledge, and governments across the world are recognising that they need to commit to this and they’re going to need the private sector to be a partner in this,” Sivanesarajah said.
“When you get the right operator, there’s actually some very strong long-term growth projections for this sector. You’ll get the proper societal outcome, but you’ll get a proper economic outcome as well, so I think there’s some significant opportunities there.”
Additionally, with Asia projected to host around two-thirds of the world’s middle class by 2030, these economies are poised for significant evolution.
“What happens when you have a growing middle class like that is they want to travel, so assets like airports are quite attractive,” Sivanesarajah said.
“Coming out of the COVID period, their earnings have been depressed, the capacity in many routes still hasn’t come back to pre-COVID levels, and airfares, for the most part, are significantly higher. In some routes, they’re 50 per cent higher than they were pre-COVID.
“So, there’s a good opportunity here where not only is the top line potentially growing, but the quantum of people who want to travel is going to increase, and that’s going to be there for a number of years.”
But Susanta Mazumdar, portfolio manager for the Tribeca Asia Infrastructure Strategy, added investing in infrastructure is “not about catching a wave”.
“What AI is going through with data centres, we do not know how long it will exist, and as we have seen in the case of all cyclical investments, in the tech sector or any other sector, it comes in waves and it goes in waves,” he said.
Opportunities in clean energy
Sarah Shaw, global portfolio manager and chief investment officer at 4D Infrastructure, said infrastructure provides investors with a unique opportunity to capitalise on some of the most exciting growth drivers of the next two decades.
While data centres have featured prominently in recent discussions surrounding AI, she believes a better way to “play” this theme is via communication towers and the electricity sector.
Particularly, in regard to the energy transition, Shaw pointed out that considerable investments will be necessary “if the globe has any chance of meeting net zero goals”.
“This is not just a developed market story and is not just a renewable story. Without huge investment in grids, the energy transition fails and when you can capture this investment with a regulated return, the thematic becomes very attractive,” she said, describing grids as “the underappreciated investment opportunity”.
Tomas Wegelius, partner at Access Capital Partners, also described the energy and utilities sector as a strong growth area.
An estimated $1.6 trillion to $6.5 trillion of infrastructure spending globally is needed by 2030 to achieve a commitment to carbon neutrality by 2050, he elaborated.
“Investments in clean energy would need to triple by the end of the decade to keep the 1.5 degrees Celsius target in sight, so we are seeing significant growth in the volume of renewable energy projects being launched and a greater need for financing.
“We also observe a greater diversity of renewables projects, such as small-scale hydro and solar, biogas projects, as well as integrated and flexible solutions such as battery energy storage,” he said.
Moreover, the transport and mobility sector is demonstrating strong prospects, Wegelius added, amid a major transformation to meet carbon neutrality.
“The shift to clean mobility is one of the major issues of the next few years, creating significant opportunities in the sector,” he said.
