Consulting firm McKinsey and Company describes them as physical assets on which we all rely every day – from the utilities that provide our power and water, to the toll roads and railways on which we travel. These types of businesses typically enjoy the following characteristics:

• Long-life assets governed by long-term contracts
• Inflation-linked revenues
• Stable and growing cashflows

Previously suited to institutional investors, individuals can now access infrastructure assets, through the shares of infrastructure companies listed on the stockmarket.

But the nature of infrastructure assets is changing at pace, as new waves of technology are adopted, particularly since the pandemic.

By the time you finish reading this article and watching the video, which seeks to help investors understand what this next generation of technology investments means for them, you should be able to understand the following:

• Understand the emerging trends with the next generation of technology
• Explain the opportunities and risks it presents to investors 
• Explain how advisers can gain exposure to the next wave of tech investments

This is worth 30 minutes of CPD.

Changing world

Revolutions in energy, mobility, and digitisation are introducing new dynamics to existing infrastructure investments that previously appeared almost impervious to change, according to a report penned by McKinsey.

At the same time, economic and social transformations are introducing new types of investments that represent opportunity for investors.

The report added that exposure to new types of infrastructure assets demands that investors manage higher levels of risk. 

Many next-generation investments are self-evident, such as electric-vehicle (EV) charging networks, battery storage, hydrogen distribution, and smart motorway and rail technology, 5G telecom networks, and data centers. 

These assets offer many of the characteristics that infrastructure investors look for: real assets, protected market positions, and the potential to generate stable cash yields. 

However, to get exposure to these new asset classes, investors should consider there might be a period of significant investment and negative cash flow, along with development, technology, and commercial risks.

Competition

Tech giants are themselves investing big in next generation technology.

Facebook, reinvented itself as Meta and committed to spend more than $10bn per annum to build out the Metaverse, requiring vast amounts of data centre space.

Ben Forster, portfolio manager global real asset securities at Schroders, further explains in an article he wrote for the fund manager, that Google's DeepMind division said earlier this year that they were on the verge of achieving human-level AI (Artificial General Intelligence) through their Gato AI tool. AI tools deal with billions of parameters.

The more computing power available, the more accurate they become. 

Scale and speed-to-market are critical for these tech giants, which has created a huge leasing opportunity for the data centre industry where the key ingredients of land, power supply and fibre connectivity are increasingly tightly held resources.

“The cloud” is housed in gigantic fortress-like warehouses, filled with hundreds of thousands of computer servers. To guarantee continuity, population centres are served by multiple cloud “availability zones”, each with multiple back-up power sources.

The infrastructure network serving Microsoft’s Azure cloud, for example, includes data centres, fibre optic cable and satellite communications.