WAM Alternative Assets Megatrends Series | Digitalisation

Dania Zinurova

Wilson Asset Management

The WAM Alternative Assets Megatrends Series explores the long-term megatrends that the WAM Alternative Assets (ASX: WMA) portfolio can access through investing in alternative asset classes. Join Portfolio Manager Dania Zinurova as she explores the long-term megatrend of digitalisation.

  • Technology is advancing at high speeds spanning from artificial intelligence and automation, to financial technology and biotechnology and even cybersecurity.
  • Experts estimate that over a period of about every couple of years we generate more data than we have ever previously produced. Moving these extreme volumes of data around takes a lot of sophisticated infrastructure.
  • As such, Digitalisation translates well into investment strategies in infrastructure, and strategies within asset classes such as private equity and venture capital.

 

Dania Zinurova: We see technology everywhere now, and it is a trend impossible to ignore as it is advancing at a high speed, and affects all aspects of our economy and society. It is a fairly broad trend that spans from artificial intelligence and automation to financial technology or biotechnology, cybersecurity and other digitalisation.

I really like this megatrend as it translates well into investment strategies in infrastructure. When we think of infrastructure we typically think of roads, railways, bridges and national electricity grids. In other words, these are traditional infrastructures. Investors have successfully pursued these kinds of opportunities for as long as they have been investible. The societal necessity of such assets and associated cash flows as well as downside resilience represent key attractions for the asset class. This is very much accepted wisdom amongst the investment community and it is arguably driving this trend that we have seen with infrastructure asset valuations reaching levels significantly above long-term averages. However, as with any broad asset valuation assessment, it is critical to understand the full investment universe rather than just those offering easy access and scale.

The recent research shows that often less visible and less obvious infrastructure asset class sectors continue to present some particularly interesting investment opportunities, notably in digital infrastructure. Here are some statistics to give you more colour: globally, we generate an astonishing amount of data. A blog on the World Economic Forum said that the total digital universe would reach 44 zettabytes in 2020. For context that is 44 and 21 zeroes, or according to the World Economic Forum, 40 times more than the number of stars in the universe. Experts estimate that over a period of about every couple of years we generate more data than has ever been produced previously. Moving that data around takes, and it will take, a lot of sophisticated infrastructure. Today’s global economy of products and services would come to a standstill without it. It refers to mobile and infrastructure assets such as the data centres, fibre networks and macro and micro cell towers that are essential to financial networks, public services, consumer portals and the Internet of Things.

Aside from this seemingly insatiable demand for this kind of data infrastructure, the difficulty of replicating them and the potential early mover investment opportunities make digital infrastructure attractive to institutional investors. It also offers potential for long-lived and predictable cashflows. Now, this strategy is not easy to implement in any market as scale is required. I worked in the past with one US-based fund manager who was one of the first movers into this space and launched the first dedicated fund to invest in digital infrastructure in the US a few years ago. This space that has previously been dominated by private equity players, and had different return characteristics in the past, is now acquiring more infrastructure-like characteristics, and as it matures, infrastructure investors have become more comfortable with the opportunity set.

Digitalisation also translates to strategies within asset classes such as private equity and venture capital. Within our WAM Alternative Assets portfolio we have an exposure to a leading e-commerce enabler in South-East Asia. This company has more than 400 integrations and acts as the critical technology platform layer for brands to participate in e-commerce in the region. The company has more than 800 staff across five markets and has sold more than 100 million items since the company’s inception. This business is a critical long-term partner for leading global brands who are starting to sell products online for the first time. We are looking forward to seeing strong financial results post-exit in this investment.

Within the WAM Alternative Assets investment portfolio, I am excited about the opportunities that exist in digitalisation particularly as an infrastructure or private equity play. With technological advancements happening at a rapid pace, the digitalisation of our global economies is a trend that will truly shape our society in the future.

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Dania Zinurova
Portfolio Manager
Wilson Asset Management

Dania joined Wilson Asset Management in 2020 and is the Portfolio Manager for WAM Alternative Assets. Dania has held senior investment roles in Australia, the US, Europe and the UK throughout her career of almost 20 years and most recently held...

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