Boe Pahari, Founder of VisionEdgeOne, explains VisionEdgeOne’s investment philosophy that underpins its investment strategy, including the cycle of imagination to infrastructure and the global forces of disruption, and the drivers that he believes make infrastructure attractive in the current environment

Throughout history, infrastructure has evolved with new inventions and technological advancements. As ideas turn into inventions and are adopted by society, they become critical to modern day living. During the Industrial Revolution (1760- 1830s), the world saw substantial developments in mining, metallurgy, transport, and machinery driven by cheap energy from coal. The steam engine was a ground-breaking technological advancement and it enabled applications such as steamboats and locomotives. The benefits of these applications were further broadened by key infrastructure developments such as ports, railways, and bridges. During the 20th century, mass production enabled goods to be made available to the general population, significant oil fields were discovered, the automobile and airplane emerged as modes of transportation, and the computer became a means of information processing. Enabling and sustaining these applications relied on roads, airports, and data network infrastructure.

Fast-forwarding to the 21st century, the World has seen significant technological advancements within IT, quantum computing, renewable energy, bioengineering, and space exploration driven by science-based research. Inventions and applications are rapidly evolving, spanning green technologies, Internet-of-Things, and the circular economy. Infrastructure is similarly undergoing rapid changes with smarter, faster, and more integrated energy networks, a new architecture of digital networks, and the adaptation of robotics, healthcare technology and sustainable food. 

Throughout history, ideas and technologies have evolved from imagination to infrastructure. The infrastructure of tomorrow is borne from the ideas and inventions of today.

Global Megatrends driving infrastructure investment opportunities

Boe Pahari and VisionEdgeOne believe the world is being shaped by megatrends, which will have an inescapable effect on society and the infrastructure it requires. We are guided by the following megatrends, informing our approach to infrastructure sectors and technologies:
– Globalisation: inevitable trend of globalisation, with medium-term shocks of privatisation and border concerns
– Urbanisation: expanding urban areas and development of smart cities
– Digitalisation: exponential growth in data as lifestyles grow dependent on digital connectivity
– Demographics: an ageing population in the developed world, and a growing middle class in the developing world
– Sustainability: crucial importance of the energy transition and ensuring a sustainable future
– Idiosyncratic disruptors: the Covid-19 pandemic was an example of a phenomenon disrupting modern living

Applying a Technology Investor mindset to infrastructure

• Existing solutions: In recent years, new sub-sectors and business models have emerged as infrastructure investments as they are increasingly recognised as essential to society. An example is related to access to fresh food and its safe transportation, which has created an infrastructure thematic around cold chain logistics and cold storage facilities. Another example relates to the operation and maintenance of infrastructure, where business models are becoming more technology-driven and thus emerging as an infrastructure category. Going forward, we see existing solutions within robotics, automation, cloud services, and financial services potentially moving towards infrastructure.
• New technologies: New technologies and solutions may emerge as brand new business models, as well as complementing or substituting existing infrastructure. For example, with the emergence of electric vehicles to support decarbonisation of transportation, people are replacing existing combustion engine vehicles to serve the same fundamental transportation need. This transformation relies on electric charging infrastructure, which needs to be put in place to make electric vehicles a widely-available sustainable solution. Looking ahead, similar advancements could evolve in areas such as sustainable food production (e.g. vertical farming, aquaculture), renewable energy (e.g. carbon capture, sustainable fuels), advanced recycling (e.g. plastics recycling, waste recycling), transportation (e.g. drone technology), and digital solutions (e.g. healthcare, education).

While existing solutions characterised as traditional business may have a clear line of sight to becoming infrastructure, new technologies and solutions will need to undergo a phase of de-risking before achieving broader societal adaptation. Within this lifecycle lies a universe of the future of infrastructure.

Infrastructure’s Dynamic Market – Underpinned by Robust Fundamental Demand

Investment in infrastructure is the foundation for both developed and developing economies. It can promote economicgrowth and reduce social gaps. Although reliable electricity, access to clean water, telecommunications, and transportation may be taken for granted in many parts of the world, a lack of infrastructure creates social division in both developed and developing countries and is a barrier for developing economies to sustain growth and improve living conditions.

Despite fundamental demand, there has been significant underinvestment in infrastructure even in developed economies in recent history 1 . Some of this underinvestment may be explained by the fact that infrastructure investments often involve a sizeable upfront investment and a long-term investment horizon.

Between 2016 and 2040, the global need for infrastructure investments is estimated to be USD 97 trillion (3.7% of global GDP), which based on current trend, leaves an investment gap of USD 18 trillion to meet the United Nation’s Sustainable Development Goals 2 . The estimated global investment need can be apportioned between the following sectors: Energy (USD 31 trillion), Telecommunications (USD 8.9 trillion), Airports (USD 2.6 trillion), Ports (USD 2.3 trillion), Rail (USD 11 trillion), Road (USD 34 trillion), and Water (USD 7.3 trillion) 3 .

Boe Pahari and VisionEdgeOne consider that the need for infrastructure investments is driven by a range of factors and inparticular the following:

• More infrastructure: Towards 2050, the World’s population is projected to grow to 9.7 billion people, the middle class is projected to exceed half of the world population, more mega cities are emerging, people are leaving rural areas, and the share of population aged +65 years is projected to increase to 16% compared to 8% in 2015. 4 Economic growth and the demand for more infrastructure are closely linked. For example, most areas of business require more power and input to support increased production, and transportation infrastructure to move people and goods. Households rely on utilities, access to work and leisure either physically or digitally, as well as social infrastructure such as healthcare, education, and childcare. Furthermore, with changing demographics, we believe the need for infrastructure is changing with higher demands in cities, different requirements from a rising middle class, and more pressure on healthcare systems with an ageing population.
• Energy revolution: The environment of the Earth is changing rapidly. We are consuming more and more natural resources, and CO 2 emissions already exceed what nature can break down. Ecosystems are being destroyed and air and water is being polluted. Consequently, the world is faced with rising temperatures, more extreme weather, shifting climate zones, declining biodiversity, destruction of farmland, and rising sea levels. Air pollution causes more than 7 million premature deaths per year and with the current trend, it is projected that 90% of the wildlife that existed in 1970 will be gone by 2040 and 33 countries will face severe water stress by 2040. 5 As a reaction to environmental changes, there is a broad push towards sustainability and efforts to decarbonise energy consumption by transitioning towards renewable sources of energy. In 2016, the Paris Agreement entered into force whereby the adopting parties set a goal to limit global warming to well below 2, preferably 1.5 degrees Celsius, compared to pre-industrial levels. Further, it requires countries to reach global peaking of
  greenhouse gas (GHG) emissions as soon as possible to achieve a climate neutral world by mid-century. The EU has set a binding target of net-zero GHG emissions by 2050 and a goal of reducing CO2 emissions by 55% by 2030. Other countries across the world are adopting similar goals and climate initiatives. To reach net zero, significant infrastructure investments are required to replace fossil fuels with renewable sources of energy, to scale up electrification and to decarbonise transportation, buildings, and production processes. The annual average global infrastructure investment requirement between 2016 and 2030 is estimated to be USD 4 trillion of which 59% is related to clean electricity technologies, 37% is related to efficiency and end-use technologies, and
  4% is related to low-emission fuel technologies. 6
• Digital revolution: Consumption of data is rapidly growing as the World becomes more interconnected, behaviours change and of ways of living adapt. Towards 2027, mobile data traffic is projected to grow fivefold, and the number of connected devices to exceed 40 billion. 7 Applications increasingly require high bandwidth with low latency connectivity, and emerging technologies, such as virtual reality, Internet-of-Things (IoT), remote surgery, autonomous vehicles, and Machine-to-Machine (M2M) are also predicated to turbocharge data consumption. The total volume of data created and replicated worldwide is expected to reach 181 Zettabyte by 2025, up from 64 Zettabyte in 2020. 8 To address the growing demand, significant infrastructure investments are needed in connecting people with ultrafast fibre networks, high-density mobile connectivity, and closely- connected data centres. The Covid-19 pandemic exposed that both the private and public sectors have underinvested in this area. As a result, governments, municipalities, and businesses are looking to future-proof and adapt to new ways of working by transforming their digital infrastructure.
• Ageing infrastructure: Critical infrastructure across the world is ageing and in need of significant upgrades. This is a particular problem in large, developed economies 9 . A substantial proportion of the infrastructure in most of these countries was constructed during the 20 th century and increasingly faces the risk of becoming obsolete and worn out as usage evolves and technologies advance. For example, bridges may not be able to carry the heavy cargo trucks used today and modern cargo vessels may not be capable of berthing at an ageing seaport. Infrastructure is often capital-intensive and requires well-planned maintenance and upgrade procedures, with the results of underinvestment being elevated maintenance costs and ultimately the replacement of the asset in question. Consequently, ageing infrastructure is a challenge for governments and given the capital-intensive nature there is a substantial demand for capital to facilitate the upgrading and replacement of existing infrastructure worldwide.