Digital infrastructure as essential as water today: asset managers

Digital assets are important components of change in the infrastructure investment landscape today and are as essential as water and electricity, experts said at a panel session at ASK 2023 on Wednesday.

In the era of high interest rates, more investment managers will be under increasing pressure to create new value from infrastructure and will have to struggle for long-term value, said experts from four firms – CBRE Investment Management, NextEnergy Capital, Schroders Greencoat and Fengate Asset Management – during a general partners’ discussion session on Oct. 25.

Digital data is a core part of the modern infrastructure portfolio, and social infrastructure like healthcare and affordable housing is also attractive with long-duration cash flows and upside potential, especially mid-market, said CBRE Senior Director Nicholas Riordan.

Speakers at the GP panel session agreed that climate change is another disruptive trend in the infrastructure market.

“The evolution of the infrastructure market is driven by needs, and one of the overwhelming needs is decarbonization. It is disruptive, but we do see the assets deliver predictable cash flows,” said Schroders Greencoat Partner James Samworth.

Among renewables, solar power has relatively low risk in terms of costs, NextEnergy Capital Managing Director Shane Swords said.

It takes six to nine months to build a solar power plant, which is straightforward compared with construction in other asset classes, he explained.

The investors shared their views on how high interest rates will affect infrastructure fund management.

Infrastructure provides stable returns across interest rate cycles, and high rates can lead to higher power prices. 

But fund managers of core and super-core assets will be under a lot of pressure with higher-for-longer interest rates as an increase in the assets’ discount rates will cut net asset values, and in turn, returns will decline, said George Theodoropoulos, managing partner of Fengate Asset Management.

Under the challenging circumstances, managers will need to take more risks to create value, he added.

“Debt is expensive today and will eat all your cash flow if you're not careful. (In response to that,) we price our equity at a certain value for the project life, and then we think what will be the equity discounted when we sell the asset,” he noted.

Write to Jihyun Kim at snowy@hankyung.com


Jennifer Nicholson-Breen edited this article.