“Everything that can be digitalized will be digitalized,” predicted the former HP CEO Carly Fiorina in 2009, when the transfer of mobile data exceeded voice transmission by telephone for the first time. But connecting devices and people needs the right digital infrastructure. This is still lacking today. To put a positive spin on it, there is a lot of catching up to do. This is why professional investors are discovering a new asset class – Infrastructure 4.0.
Just as the term “Industry 4.0” describes the interlinking of production IT and business IT for permanent data flows for the management of production and sales, “Infrastructure 4.0” is about the requirements for digitalization more generally. The focus is primarily on data centers and fiber optic networks, but also 5G towers and internet hubs in general.
80% of institutional investors consider investments in digital infrastructure assets to be attractive. A massive 95% believe the importance of Infrastructure 4.0 will grow sharply in the next ten years. These are the findings of a survey by LBBW and CFin – Research Center for Financial Services at Steinbeis University – of 136 insurers, asset management firms and banks. The investors believe that digital infrastructure will be more relevant in the future than energy and transport infrastructure, for example, or even alternative forms of investment such as private equity or private debt. “We expect investments in Infrastructure 4.0 to increase considerably and the associated assets to make up a large proportion of the portfolios,” says Christian Munz, who advises LBBW’s institutional customers on the search, selection and financing of their investment projects. At the moment, digital infrastructure assets account for only a small proportion of the portfolios, namely 4%. The vast majority of those surveyed want to expand their holdings or enter this asset class. According to the “Infrastructure 4.0” study, only 13% do not want to invest.
of those surveyed want to increase the proportion of Infrastructure 4.0 in their portfolios.
What is Infrastructure 4.0?
- Internet backbone
- Broadband lines
- Network equipment
- Radio towers
- Data centers
- Cloud computing
- User devices
- Internet of Things
- Energy, etc.
- Platforms for software development
- APIs and integration
- Payment systems, etc.
Arguments against the new “digital infrastructure” asset class are the complex reporting requirements and low market transparency. However, most professional investors believe there is a whole bunch of arguments in favor. Aspects referred to particularly often by the survey respondents were sustainability, demand drivers such as the Internet of Things (IoT), and the generally high reputation of digital infrastructure. They are most interested in fiber optic networks and data centers as targets for investment, while satellites are deemed less attractive.
Focus on fiber optic networks and data centers
Fiber optic networks are of interest to investors because, in many places, the internet is still very slow. In German-speaking countries, less than 10% of households and businesses are connected to the fiber optic network.
Data centers are also of interest to professional investors – as digitalization picks up speed, more data are generated, processed, and subsequently stored. The use of cloud services is therefore increasing, and with it the demand for data centers.
Investing in Infrastructure 4.0
Investments in particular demand, in %
The survey respondents prefer projects in German-speaking countries. However, selected neighbors such as France, Scandinavia and Asia are also growing in importance. “Germany, Austria and Switzerland are favored by institutional investors based here. This is of course due to their market knowledge, but also the high potential in the region,” says Thomas Schulz, Head of Infrastructure and Transport Finance at LBBW. In Germany, digital advancement is also being driven by targeted investments and finance.