How a digital revolution is upon us

Partner Content: Matt Norris from Gravis Capital Management talks to Room151 about the growing digital infrastructure sector, its key elements and the opportunities it presents to investors.

R151: Can you explain what is meant by digital infrastructure?

MN: It is the physical assets – the bricks and mortar and cables and steel – that house, or host, the growing elements of our digital world. More and more, we are all moving from an analogue world to a digital world, using mobile phones, texting, emailing and using social media. This creates rental income opportunities from those structures that accommodate the means for us to live in an increasing digital environment.

R151: What are the key areas of the digital infrastructure sector?

MN: These comprise communication towers, data centres, logistics warehouses and e-commerce fulfilment centres, and fibre optic communication networks. All of these “next generation” infrastructure assets either lease space – for communications equipment, for servers, and for e-commerce fulfilment – or lease network capacity for digital communications or battery storage capacity for managing the electricity grid.

R151: How does the VT Gravis Digital Infrastructure Income fund work – what does it invest in?

MN: The fund allows investors access to a range of best-in-class investments – primarily Real Estate Investment Trusts (REITs), Real Estate Operating Companies (REOCs) and collective investment schemes and equities. The fund primarily invests in listed companies in developed nations. Some examples include: (in the UK), Segro, a REIT and leading owner, manager and developer of modern warehouses and industrial property; (in the US), East Group Properties, a REIT focused on the development, acquisition and operation of industrial properties throughout the US; and, (in Belgium) Warehouses de Pauw, specialising in the renting of multifunctional warehouses, storerooms, logistics and distribution centres, and industrial real estate.

R151: What are the opportunities for investors?

MN: The investment opportunity is to gain exposure to the leaders of the digital infrastructure world through a diversified fund that is managed by Gravis, a boutique fund advisor whose expertise is in infrastructure and property investing. The fund is open to individuals, pension funds, institutions and local authorities, providing an efficient and effective way to gain exposure to “next generation” digital infrastructure assets that would otherwise be difficult to access. The global digital infrastructure universe is growing rapidly and currently has c.120 listed companies. Digital infrastructure assets generate contractual cash flows, have long time horizons and are accessible to investors via liquid listed securities.

Picture: Getty Images

R151: How do digital infrastructure assets sit as regards ESG criteria?

MN: Digital infrastructure companies are increasingly meeting the energy efficiency challenge. Listed owners of data centres have made sustainability and increasing energy efficiency top priorities. Equinix, the world’s largest data centre REIT, has achieved 91% energy procurement from renewable energy in 2020 and is committed to reaching 100% renewable energy and achieving global climate neutrality by 2030. Switch, a US data centre operator, has been running all its facilities on 100% renewable energy since 2016.

Data centres are working to reduce emissions to increase their efficiency of the data. Mobile phone towers – the physical structures that telecommunication antennae are fixed to – are often owned by REITs that are seeking to reduce their environmental footprint by both switching the source of their power to renewable energy and by reducing the amount of power that they consume through increased efficiencies.

For example, American Tower Corp, the world’s largest tower REIT, is installing solar panels and batteries across its sites to reduce reliance on on-site diesel and gas-fuelled generators; Vantage Towers, the owner of towers across Europe, was targeted to procure 100% of its electricity from renewable energy sources by the end of 2021.

By investing in best-of-class assets that help to centralise processes and encourage use of the cloud, rather than physical in-house data storage, we can work to minimise the toll our hunger for digital technology has on the wider world.

R151: What is the future for digital infrastructure investment?

MN: Exponential growth! Digital technologies pervade every area of our lives. The infrastructure needed to support and enable the storage and transmission of mindboggling vast quantities of data around the world every day is critical. The demand and opportunity for investment is huge, particularly with the emergence of new technology. The 5G revolution, for example, is expected to be a game changer, with download speeds projected to be 18.5x faster than 4G, greatly increasing demands on data and the infrastructure that enables it.

Matt Norris is fund adviser and director of real estate securities of the VT Gravis Digital Infrastructure Income Fund.

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