At QIC, we believe the transportation sector offers steadfast opportunities and portfolio diversification benefits for debt investors that should not be overlooked.
Telecommunications infrastructure and the energy transition — listen to any infrastructure fund manager, banker, advisor or direct investor in 2024 and you would be hard pressed not to believe that these two sub-sectors will dominate the attention — and capital — of investors for the rest of the decade and beyond.
The appeal of both is clear. High income economies are in the early to middle stages of replacing their power generation fleets with low carbon and renewable alternatives. Simultaneously, the ever-increasing demand for data delivery and processing, and the infrastructure to do so, is equally staggering to consider.
But in the excitement to find opportunities in these spaces, it is easy to lose sight of another infrastructure sector, one that can deliver consistent opportunities, benefits from some of the same tailwinds and portfolio benefits. The roads, rails, bridges, ports, airports and related infrastructure that, instead of moving electrons or photons, move the people and goods that undergird the global economy.
As direct lenders to infrastructure projects and businesses, we [QIC Private Debt] look to mobilise our capital and that of our limited partners into essential, capital-intensive businesses that we believe offer the most attractive combination of risk and return within our risk appetite. In our view, opportunities in the transportation space are proving to offer just as good, if not better, risk-adjusted returns for direct lenders than those in digital infrastructure or renewable power generation.
So far in 2024, QIC's Private Debt Infrastructure platform has supported a new airport terminal that will allow an airport in a major North American city to open to commercial traffic for the first time, and has backed one of Europe's largest cargo port operators as it continues to modernise and transition its business to support the continent's economy. These follow other recent investments in businesses tackling EV fuelling infrastructure and climate-controlled logistics.
The energy transition and data infrastructure opportunity
The rapid rate of expansion can be almost difficult to comprehend. In the primary US markets, 2023 saw year over year growth in available data centre capacity of 26% to 5.2 GW, with an additional 3.1 GW currently in construction across those markets.1 US fibre deployment had a record 2023, while Europe and the UK have also rapidly expanded availability of fibre to the home (FTTH). As of late 2023, FTTH coverage rates in the EU and UK were 64.5%, up from 55.1% the year earlier. Both the UK and Germany saw over 4.4 million additional homes passed in 2023 alone.2
Energy transition and data infrastructure collide in important ways; the biggest constraints facing data centre developers in most key markets is now the availability of power. Despite data centre requirements for uninterrupted power, major hyperscalers are focused on using renewable energy — typically intermittent by nature — to power these massive electricity consumers.3 All this to say the investment opportunity is ripe, and it is easy to understand why these sectors dominate the conversation and will sit front and center in many fund manager’s strategies.