The investment fundamentals for liquid real assets have improved, as investment in the U.S.’s infrastructure benefits from advances in technology. We define “liquid real assets” as actively traded investable securities that derive their underlying cash flows from the operation of a tangible asset base.
Executive summary
The investment fundamentals for liquid real assets have improved, as investment in the U.S.’s infrastructure benefits from advances in technology. We define “liquid real assets” as actively traded investable securities that derive their underlying cash flows from the operation of a tangible asset base.
Technology has not only refined the assets themselves but has also introduced dramatic operational influences in American infrastructure. Though this is also a global phenomenon, we feel the U.S. is ground zero for real assets innovation and rapid deployment of technology.
This is creating major ripple effects, including these four key developments:
- Electric utility and energy industries are rapidly applying new technologies, benefits of which overlap these sectors’ businesses.
- Major public and private investment have accelerated the practical application of several major improvements to reduce carbon emissions.
- Technical advancements and structural innovation are significantly affecting residential real estate and how people live, work and play.
- The interdependency of infrastructure is compounding the technology benefits for real assets.
U.S. infrastructure undergoing major shifts
Real estate brokers in Silicon Valley are saying, “all industries are now tech industries” – meaning industries as wide-ranging as agricultural, manufacturing and energy to real estate, infrastructure and a host of others, are benefiting greatly from the explosion of technological advancements that are incrementally enhancing past achievements.
For income-producing real assets, this is especially true, as competitive balances can move the goalposts with the new technology and its associated efficiencies.
A rebalancing within industries has already begun – and is certain to continue into the future. This presents an environment in which we feel investors should be mindful, as the remaking of the infrastructure in the U.S. is well underway.
Technology and its multiplier effect
To illustrate this phenomenon, it is useful to consider industries whose dynamics overlap and benefit from repurposing advancements achieved in other disciplines.
On a macro-scale, mobile computing technology is an obvious example. Though many of us remark at the capabilities of accessing and downloading a massive amount of video on our smart phones, the electric utility and energy industries are examples where an enormous amount of capital spending can be avoided by identifying disruptions in their respective transmission and distribution networks remotely.
Whether they be electrical lines or natural gas pipelines, the reapplication of this technological innovation maintains the benefit of replacing lengthy physical inspections, often compensated at overtime rates. This utility/energy example is only the tip of the technological iceberg of powerful synergy catalysts overlapping these two particular sectors. With the emphasis that society has placed on clean, low or zero carbon emissions, major public and private investment have accelerated the practical application of several major improvements.
For instance, the evolution of natural gas production with horizontal drilling and extraction techniques has catapulted the U.S. into one of the top energy producers in the world. Coincident with this evolution, the utility industry, in its effort to replace less environmentally favorable coal-generating plants, has adopted modern, cleaner-burning natural gas plant designs as an effective base-load alternative.
The happy coincidence of the enormous supply of domestically produced natural gas has facilitated this transition on an economic basis with its attendant carbon-friendly benefits.
As this chart notes, since the recovery of domestic natural gas reserves reached a new level in 2008, a corresponding increase in gas-fired utility generation also gained traction in the U.S.