Digital still a draw for infrastructure investors

Investors in Asia are continuing to pursue digital infrastructure, even as a shortage of suitable opportunities sees high prices for some deals.

Josie McVitty, senior advisor for infrastructure at the New Zealand Superannuation Fund (NZ Super), told AsianInvestor the fund has a continued interest in digital infrastructure, including fibre and towers, with Australasia, Europe, and North America as primary focuses. “We consider Asian investments opportunistically,” she said. 

McVitty said NZ Super’s long-term investment horizon meant the sector was well suited. “Fibre networks and tower networks are a good fit: there is a lot of capital expenditure required for build out,” she said.

“Unlike pension plans, we are more growth-oriented in terms of our infrastructure investing,” she said. Because the fund is less focused on liability-matching than typical pension funds, it generally favours value-added opportunities, including greenfield development, over traditional core infrastructure assets.

In general, McVitty said she favoured fund investing for the digital infrastructure sector over direct investing, given the diversification provided by funds, access to deal flow, and the local presence provided by fund managers’ extended teams on the ground. However, she said that regional Asia-focused funds were still rare, with digital infrastructure funds, like those investing in renewables and the energy transition, typically leaning global.

McVitty said NZ Super invests directly in New Zealand but favours investing with fund managers and peers abroad. 

HIGH PREMIUMS 

Growing demand for digital infrastructure assets over the last year has seen some deals achieve high premiums. In April, a consortium including Commonwealth Superannuation Corporation agreed to pay A$3.6 billion ($2.7 billion), for Australian telecoms group Uniti, led by Brookfield. It was a 60% premium to the company’s closing share price.

But Asian investors continue to pursue opportunities. In May, Omers Infrastructure bought the mobile tower assets of Australia’s TPG Telecom for A$950 million ($660 million), creating the largest independent tower company in Australia, with a total of 1,230 sites. At the time, Prateek Maheshwari, Omers Infrastructure’s London-based Asia head, told AsianInvestor the fund was keen to emulate the size and success of its European investments in Asia. https://www.asianinvestor.net/article/omers-targets-asian-digital-infrastructure-and-renewables/477643

A report published in April by IFM Investors, the Melbourne-based global infrastructure fund manager owned by 20 Australian super funds which manages A$155 billion ($120 billion), titled Resilience and Transition, noted digital assets shifting onto the radar of investors. “Data centres have also claimed their place within the infrastructure space, with many assets demonstrating resilience, and the fundamentals to support long-term stable cash flows, driven by growth in the digital economy,” it noted.

ON THE LOOKOUT

IFM has identified technology as a key plank of its own future investment strategy, with the fund now considering its first data centre investment. Its global head of infrastructure Kyle Mangini singled out Singapore’s sector.“Despite its land constraints, [it is] expected to be the prime location to connect the fast-growing southeast Asian markets to Asia and the rest of the world using its comprehensive network of undersea cables,” he told AsianInvestor.

“[Data centres] are an interesting area especially on the back of COVID-19. If we were assessing a data centre, we would use the same criteria as we apply to other infrastructure sectors: Does it provide a critical service to society? Does it have high barriers to entry? How stable is its cash flow?” he continued.

IFM has been increasing its footprint in Asia to better service its clients there, but also with an eye on future investments. It currently has none in the Asia region and instead favours Australia, where it has 16 assets; Europe, where it owns 14; and North America, where it owns six.

“South Korea and Japan are attractive investment destinations for us, with mature economies and well-established legal systems. We are active in both these regions and look forward to growing our footprint in these countries,” said Mangini, adding that both funds raised and the number of Korean and Japanese clients were growing.

Mangini pointed to the specific challenges of digital assets, such as data centres, which in some cases fit neither the profile of traditional infrastructure assets nor that of property assets.

“A data centre business might have started its life with infrastructure but has evolved into a services business and might provide, for example, software as a service, so it really looks more like a technology company. That’s not what we would consider to be a core infrastructure investment. It’s something that needs to be looked at on a case-by-case basis.”