Digitalization
The COVID-19 pandemic accelerated the adoption of remote work, education and healthcare with the popularization of HD video conferencing. The continued roll out of 5G, AI and internet-of-things (IoT) will increase demand for digital infrastructure.
For infrastructure debt investors, digital infrastructure including towers, fiber and data centers are all attractive investments, given the demand for storage and transmission of data. Debt financing has become an important source to fund the growth of these platforms.
However, one thing to be aware of is that digital infrastructure tends to be more prone to hype (e.g. cryptomining and metaverse a couple years ago; AI now). Sophisticated investors must separate commercial behavior from hype and focus on infrastructure characteristics. This includes high quality counterparties, long-term contracts, access to clean energy, minimal technology risk, and avoiding speculative capex.
Deglobalization
Deglobalization used to carry a negative connotation within the business community, but that is no longer the case. Supply chain disruptions from the pandemic, the Ukraine war, and recently from the attacks on Red Sea shipping, have made onshoring a necessity.
Increased focus on domestic manufacturing capacity and energy security will require significant investments. The EU is also looking to promote “made in Europe” green industries, as a response to the pro-manufacturing policies set out by the US Inflation Reduction Act. Europe is tracking over USD 200 billion of electric vehicle and battery manufacturing investments, and over USD 100 billion of semiconductor investments.
Reshoring accelerates the economic and population growth across previously overlooked areas. Large tech companies simply will not commit billions of dollars to build a new plant, without certainty around energy supply, transportation networks, utility services, and high-speed internet. These tailwinds support infrastructure investments across all sectors.