Investors - NOVEMBER 5, 2015

Five mega-trends are driving infrastructure investment

by Drew Campbell

Infrastructure investors, by the very nature of the assets they own and manage, take a long-term view of the world. Roads, bridges, airports and other infrastructure have lifecycles of 40, 50 or 100 years and so a long-view is required.

But today’s investing environment contains several trends that challenge infrastructure assets in ways that are probably new to most infrastructure investors.

As part of its annual strategy review, QIC Global Infrastructure identified and analyzed the five mega-trends it believes will have the most impact on infrastructure assets over the long term, and published the results in Reimagining Infrastructure Amid Transformative Change:

1.     Resources: getting more from less

2.     Digital disruption, enabling innovation

3.     High public debt: a durable constraint on fiscal and policy options

4.     The New Silk Road

5.     Urbanization: the coalescing of multiple mega-trends

“These trends impact the management of existing assets and the operating businesses that run them,” says Ross Israel, head of QIC Global Infrastructure and lead author of the report. “But their impacts are not going to happen tomorrow. These are long-tail events, and we wanted to step back and look at them to help us make better long-term decisions about these assets.”

The Australia-based investment manager has used the analysis to identify opportunities for more efficiency and increased capital deployment in its infrastructure investments. For example, in 2013, QIC made an investment in The Ohio State University’s parking system, CampusParc, and recently completed a “big data” project aimed at optimizing the system’s elevator system and lowering its maintenance costs, which were higher than QIC thought they should be.

“We hired people to collect data about the system’s maintenance schedules and the type of maintenance being used,” says Israel. “What we found was the maintenance timing and the programs being used had room for improvement. This was leading to high failure rates and costs. After analyzing this type of data, we were able to better time the maintenance and catch malfunctions before they became costly system failures.”

Israel says the big data project yielded a reduction in the historical failure rate of 10 to 15 percent and extended the life of the elevator assets.

“Infrastructure investors are just now touching the tip of the iceberg of big data that can be used to increase investment efficiencies,” Israel adds.

As digital technologies continue to improve and provide more powerful collection and analysis tools, big data projects will increasingly allow investors to enhance infrastructure asset and investment performance.

Another mega-trend the report reviews is climate change and the need for more resilient infrastructure to withstand and adapt to increasingly strong weather.

“Storms are stronger, and they will bring more rain and higher winds,” says Israel, “and weather patterns are changing, which means, for example, water catchment areas are changing.”

In particular, water connectivity — creating new networks that move water supply to where it is in demand — will be an opportunity for infrastructure investors as will water recycling infrastructure.

“These are more efficient than desalination,” says Israel.

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