In the current infrastructure investing market, with its lower expected returns and rising competition for investments, any edge can help investors meet their goals. Technology innovation and operational improvements often get overlooked in investment cycles because capital flows and deal making is how big returns can be made. But with competition in core markets strong, and investors venturing into higher risk-return options, they may do well to also consider how asset management and operational improvements can add to their bottom line.
For example, the data that most infrastructure assets contain is a potential boon, and for companies and investors in competitive industries, it can be the difference between surviving or not.
Using this “big data” can help power generation companies, for example, do a better job of using downtime during outages. Rather than focusing solely on getting power back online — often with many resources out of this loop and idle — companies that use data to get a strong understanding of their supply chains, demand patterns and the drivers of outages, can plan to upgrade to next-generation systems during this time, for example. Some are doing this already, but not all.
“Many of these types of improvements are boring and not the sexy part of investing,” says Glen Matsumoto, partner and head of infrastructure with Actis, a developer of power generation assets in Arica, Asia and Latin America. “But using data to improve operating efficiencies can generate 1 to 3 percent and sometimes more on internal rates of return, depending on the asset or project, usually with limited implementation risks.”
Matsumoto says to realize that type of operational improvement, these investments are better held longer than a typical private equity investment. “This is a game of singles and doubles, not home runs,” he says. “With a 10-year hold period you can implement these operational and maintenance strategies most effectively.”
In the competitive rail sector, meanwhile, companies have been quick to adopt digital technologies to boost performance in all facets of the business.
Consultancy McKinsey & Co., in its recent paper titled The rail sector’s changing maintenance game finds the sector’s need to the get trains running on time is a “key lever for increasing efficiency and reducing total cost of ownership, [and] big data and advanced analytics solutions such as condition-based maintenance and predictive maintenance represent a great opportunity to yield the next big efficiency leap in maintenance.”
Using this data will allow rail companies to use condition-based maintenance — maintenance on demand, essentially — to increase efficiency. “With efficiency gains of 10 to 15 percent expected, it is estimated that the global maintenance market can save up to €7.5 billion [$9.23 billion] per year by moving toward condition-based maintenance,” McKinsey notes.
Mega-funds and marquee deals may always grab the attention, and their investors certainly can tap into innovations and improvements to generate added return, but investors also can find value in big data and other innovations outside competitive core infrastructure markets.
