As the lines between infrastructure and private equity become increasingly blurred, the question of categorization — while topical — becomes more trivial, reports UBS Real Estate and Private Markets. A more relevant consideration is to understand the risks around the cash flows of data infrastructure assets to ensure that the returns are commensurate, according to UBS Real Estate and Private Markets' Innovation Paper 6 report.
2018 is the year when telecommunications infrastructure entered into the mainstream, accounting for more than 30 percent of invested capital in infrastructure to third quarter 2018, reports UBS.
A majority of these investments were in the newer sub-sectors within data infrastructure, i.e. fiber, data centers and, to a lesser extent, "smart" infrastructure. In the paper, UBS explores whether this trend is simply style drift at a time when the infrastructure sector is experiencing record inflows, or a serendipitous moment presenting a steady stream of opportunities that are well suited to infrastructure investors.
Fundraising levels have been increasing year-on-year, with fund style clearly moving to noncore investments. However, it is also true this is an attractive moment for data infrastructure: the proliferation of high definition on-demand video, gaming, cloud services, mobile data usage and IT outsourcing has created a surge in both fixed and mobile internet traffic and this growth is forecast to increase exponentially (see Figure 2). Additionally, the telecommunications incumbents have limited capacity to invest across the spectrum and are prioritizing opportunities in 5G, the next mobile generation — and, in many cases, are selling noncore assets to help fund this. This trend also creates further opportunities for infrastructure investors. Growth in data usage underpins the need for further investment into data infrastructure. Many infrastructure investors see their investment in the sector as an opportunity to own tomorrow's essential infrastructure.
To read the full report, click here.
