Three focus areas for digitalization within infrastructure

Infrastructure funds invest in public assets that people rely on to live and work, from roads and railways to schools, hospitals, or data centers. The social responsibility of managing these assets in a changing world presents challenges for the sector. How can digitalization help fund managers in becoming more flexible?

Infrastructure fundraising value in Europe has increased by 42% since 2017; with a global growth rate of 17%[1] for the same period. The investment class is expected to grow even further in the long term as it offers diversification, stable income, and long-term cash flow visibility which are popular among investors.

Digitalization is one of the important themes driving innovation in infrastructure investment globally. For example, the rising demand for 5G data centers due to increasing Internet of Things (IoT) adoption in Europe is expected to be a hot area for deal-making in the short and medium term in the region.

While many infrastructure funds are currently investing in digital infrastructure (such as data hubs, fiber optics, 5G, etc.), asset managers are lagging behind in digital adoption within investment management and operations due to three following key reasons:

• Lack of adoption of core systems – currently most of the work done using Excel lacks proper traceability and governance
• Core back-office processes follow an outdated model – they are repetitive, manual, transactional, labor intensive and lack the scalability needed today
• Over-reliance on traditional management of operational activities – from a data perspective, these activities (such as managing facilities, utilities, etc.) are not integrated into the asset manager’s systems

To stay competitive, infrastructure fund managers must embark on digital transformation activities across the entire value chain, since:

• Infrastructure funds require efficient and sustainable business processes to manage fund operations and to meet investors’ expectations in terms of return and service delivery
• Increasing regulatory pressure requires proper management of risks on an ongoing basis and transparency and traceability of the process is needed
• Lack of trained staff and increasing demands on operations calls for automation of service delivery and core processes, which in turn will help infrastructure fund managers focus more on the value add rather than overseeing transactional processes
• Increasing demand on investment reporting and more frequent valuation requirements put pressure on infrastructure fund managers to intensify efforts within net asset value (NAV) production and investor reporting processes

Infrastructure assets are long-term in nature and therefore fund managers have to adopt a long-term approach when embarking on the digital transformation journey. This will help them in appropriately scaling the overall operations in the ever-changing landscape.

    [1] Source: Pitchbook