LGPS Intelligence: The digital infrastructure opportunity

Key takeaways

• Sectors like cloud computing and AI are already seeing exponential growth, creating an increased demand for infrastructure assets that can support the fast-developing digital economy.
• Digital infrastructure represents a way to gain exposure to the technology sector with a real-asset backing. With the potential to attract blue-chip tech names as customers, these assets could provide stable long-term cash flows.
• With multiple governments committed to funding digital infrastructure over the next five years, we believe these assets are well positioned to benefit from strong policy tailwinds.

The phenomenal growth of the digital sector is structural, reflecting that our society and economy are evolving. Today, the computation, transfer and storage of data is essential and the infrastructure facilitating this is fundamental.

The digital connectivity underpinning so many of our everyday activities would simply not be possible without fibre networks, transmission towers and data centres. Key societal goals – from increased financial inclusion to creating a more environmentally sustainable world – will also need to be facilitated by increased investment in digital infrastructure.

Investors are increasingly seeing opportunities to support digital infrastructure. Today, deals involving these assets account for roughly 21% of the total infrastructure sector[1]. That compares with just 10% of deals focusing on digital infrastructure five years ago.

In our view, the space could offer LGPS funds the attractive combination of return potential and societal impact with the opportunity to align with the UK government's objective of pensions schemes investing in UK productive finance. We see three overarching trends converging, which should continue to bolster the case for the LGPS seeking out these assets.

Read the full LGPS Intelligence article here: Tomorrow’s world: The digital infrastructure opportunity

 
[1] Preqin as of Q1 2024