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Infrastructure

The revolution heading for key infrastructure sectors and assets

By Boe Pahari
BCom, LLB, LLM Global Head of AMP Capital Infrastructure Equity & Director North West Region London, United Kingdom

Air travel and communications technology are set for radical transformation as artificial intelligence continues to be developed and adopted. This creates exciting and critical considerations for investors and fund managers alike.

Urban living has dramatically changed in the last decade through advances in technology, and as artificial intelligence makes its way into everyday life.

A key example of technology’s impact, which has revolutionised social and business interactions, is in communications. Technology has enabled a shift in communications which is so transformative that geography is barely a consideration, let alone a barrier, to interaction.

In less than one generation, technology has given people the capacity to effectively jump borders to socialise, transact, and do business.

The impact of technology is, of course, not contained. Its influence and impact is only set to grow in core infrastructure sectors, which is a critical consideration for investors and fund managers alike.

Key impact: airports

Consider this: we have already seen passport control completely revolutionised by facial recognition technology. Machine learning has been used to transform immigration processes to be more efficient, precise and streamlined.

Air travel will continue to be one of the sectors most significantly impacted by technology. Core parts of airport operations, such as luggage control, have the potential to be further digitised. This will be fundamentally transformative for travellers and airport operators alike in terms of experience, cost and efficiency.

AMP Capital owns a number of airport assets. We spend a lot of time monitoring dwell time and devising ways to increase airside dwell time for customers. That means minimising the landside dwell time by speeding up parking, reducing queuing and accelerating security checks without lowering security standards.

The more you can maximise dwell time, the more you can make the airport experience positive for customers, and the more they will be inclined to take advantage of the retail opportunities on offer. That, of course, is commercially important for our investors.

Key impact: communications and internet coverage

As mentioned, communications is one of the key sectors which has been revolutionised at its core through the onset and mass, willing adoption of technology.

The iPhone was launched in 2007, just 12 years go. Today we rely on smartphone technology in an absolute sense to socialise, communicate, transact and do business. The explosion of, and trust in, app technology in particular has been remarkable.

So, what’s still to come? I think we will see a lot of bedding down of the tools and services we are familiar with, but aren’t as powerful as they can be. I don’t think we can expect functionality to change dra-matically, or surprise introductions to the communications landscape. Rather, the infrastructure behind what we are already using will become a lot more robust.

For example, if you are walking along a London street today, you might quite easily lose your internet or wifi connection to your smartphone device. It happens all the time, particularly in summer when there are more tourists accessing central systems. However, advances in 5G, for example, will significantly improve the situation and experience for smartphone users.

The result of tweaks and improvements like this is phenomenal, and almost too expansive to grasp. For example, there is potential for an even bigger uptick in remote working as communications infrastructure improves, which changes the very nature of office spaces. Changes like that are not contained, as there are impacts then to the kind of transport systems required for workers, for example. Everything is inter-linked, and every improvement has a social and economic impact of some variety.

Key impact: ships and trains

The management of train systems is another prime example of technology’s impact on core infrastructure assets. Ongoing maintenance is of the biggest time and cost investment considerations in running a rail network, and it is becoming increasingly automated. This makes for improvements in experience, efficiency and cost.

In addition, consider the example of one of our portfolio companies, which is an emergency rescue and recovery business. Traditionally, ships have been stationed in the ocean, ready for something to go wrong with an offshore windfarm or oil rig. Those ships would then have provided search and rescue support around the clock. Today, however, we are using drones and artificial intelligence to inspect those windfarms and rigs, removing a huge and costly part of the monitoring and emergency management process.

Further, introduction of such diagnostic equipment is providing remarkable accuracy, speed and safety gains for our people. It is also enabling us to be proactive in preventing situations, rather than just responding to them. That is just one powerful example of combining different technologies to improve the way existing infrastructure is working.

The challenges on the horizon

There are two kinds of technology risk that we actively consider: how quickly you adapt to certain technologies and then how quickly those technologies become obsolete.

With that in mind, we have a dedicated ‘infratech’ function within the AMP Capital business. The responsibility of that function is to look right across the portfolio to see where we can bring in enabling technologies. Then, as we invest in sectors such as communications, that function is also continuously monitoring the environment to gauge obsolescence risk.

We live in a competitive world. If we are to meet and exceed acquisition cases, we need to make sure we keep abreast of whatever technology we can get our hands on, and try and adopt that technology as soon as makes sense. For instance, we have a port handling business where the labour requirement varies substantially based on demand. Being able to modulate that labour is key to the profitability of the business, and technology has made a massive difference to our ability to do so. This business is also using GPS technology, IoT for equipment handling and using data digitisation to capture equipment and container movement and conditions.

In terms of obsolescence, we generally find people ask questions the most around fibre optics and cell towers. However, all the studies we have done show that even if new tech solutions that could erode the position of fibre optics were to be developed today, it would still take 15-20 years to commercialise that technology.

Finally, I add that we are not looking to get involved in technologies at their most nascent stages. We want to be early movers, but not first movers, and there is an element of risk mitigation there as well.

Ultimately, we are presented with an abundance of opportunity, coupled with risk considerations. The right talent and strategies is crucial to getting investments right.  

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Boe Pahari, Global Head of AMP Capital Infrastructure Equity & Director North West Region
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While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.
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