Some managers are betting that newer sectors have a more attractive return profile.
Digital Colony Management LLC is one of them. The firm was launched in 2018 by Digital Bridge Holdings LLC, an investor and operator of companies in mobile and internet connectivity, and real estate manager Colony Capital Inc.
"The asset class has evolved from venture capital-backed companies to private equity-backed and eventually to infrastructure, real estate and public companies. That reflects the increased importance of digital infrastructure in our daily lives and work," said Ben Jenkins, co-founder and chairman of Digital Bridge and managing partner of Digital Colony, New York.
"It is as important as other utilities like electricity and water and the investor base has broadened over time," he said. "This evolution is certainly fueling more capital allocation. However, very few have the operations capability that we do. (Other managers) are typically looking for stable assets with in-place management teams. We can do development, M&A and take a more operations-intensive approach. In that world, there is less competition."
The sector provides a more stable and higher rate of return than other infrastructure like transportation and energy, he said.
"At the same time, the requirements for what we call digital infrastructure have increased. We have been in the space for over 25 years now," Mr. Jenkins said. "It's not a passive infrastructure model compared to a toll road, which is the ultimate passive infrastructure investment … There's little alpha generation in that type of asset."
He said he expects a significant uptick of digital infrastructure investment.
"We don't see anything on the horizon that would slow down the growth in our sector." he said.
For instance, there is a concept in transportation planning referred to as supply-driven demand, Mr. Jenkins explained.
"If you have more roads then you will have more cars. A robust user experience drives more consumption of that service. As bandwidth grows, more applications will be developed. That's how we see the next five to 20 years," Mr. Jenkins said.