The biggest question in investment markets right now isn’t whether artificial intelligence (AI) will change the economy, it’s which businesses will still be standing once it does?
For more than a decade, the biggest winners have been “asset-light” companies including software, online platforms and other businesses that own very little physical equipment but make a lot of money from ideas and code. This is because they have historically been cheap to grow and easy to scale. But AI is now disrupting many of these very businesses and investors are starting to look for shelter.
That shelter has a name: HALO – Heavy Assets, Low Obsolescence.
These are large, physical, hard-to-replace assets that aren’t easily made redundant by new technology. There are a growing number of opportunities in the Australian market within this space, some of which are available publicly, but a growing number are only available in private markets (not listed on an exchange like the ASX).
This means choosing the right investing partner is critical, to ensure that you have access to the full investment universe.
What counts as a HALO asset?
Think of the infrastructure that keeps modern life running, including power stations and electricity grids, data centres, water and waste systems, pipelines, ports, railways and toll roads. These assets are expensive to build, slow to wear out and largely unaffected by whatever the next clever piece of software does.
A useful way to picture it: a better algorithm can replace a customer-service team, but it can’t replace a transmission line or a water treatment plant.
Three reasons investors should consider HALO assets
- A spending boom decades in the making. The world has under-invested in physical infrastructure for years and it’s now ageing just as demand surges from electric vehicles, manufacturing returning home, and the digital economy. One estimate from consulting firm McKinsey puts the global infrastructure bill at around $106 trillion between now and 2040.
- AI actually needs this stuff. The biggest thing holding back the AI boom is access to power. Data centres are enormously hungry for electricity and there simply isn’t enough generation capacity, grid connection, or equipment to go around. New projects can wait two to six years just to get connected. That makes the companies that own power and grid infrastructure very valuable. Australia only has a handful of listed infrastructure companies, so having access to investments in private companies and projects is critical.
- Some protection against rising prices. Many of these assets have contracts that automatically lift their revenue in line with inflation and people keep using electricity, water and transport regardless of price. That can help these investments hold their value when the cost of living climbs.
The clever part: protection either way
Here’s what makes HALO assets genuinely interesting rather than just another trend. If the AI boom keeps roaring, these assets benefit because AI depends on them. But if AI disappoints and the hype fades, the owners of this infrastructure are largely protected too, because their revenue is locked in through long-term contracts that have already been signed.
In other words, it provides exposure to the good outcome and a cushion against the bad one. That balance is exactly what makes these assets useful for spreading risk across a portfolio, rather than being a one-way bet.
Why access to private assets is critical
Access to a broader opportunity set is not the only benefit of private infrastructure investments. Another key advantage is that privately held infrastructure tends to have steadier, contracted income, whereas listed versions bounce around with daily share market fluctuations. It has also historically moved quite independently of shares and bonds, which is helpful for diversification within your overall portfolio.
The most important thing to consider when investing in private assets is that the gap between the best and worst managers in this space is wide. Choosing experienced, specialist managers matters enormously, which is why Integro Private Wealth works directly with firms like Spire Capital to ensure you are getting the best possible investment advice.
The bottom line
In a world where AI is reshaping so much of the economy, owning durable, physical, income-producing assets is a sensible way to strengthen a portfolio and improve its chances across a wide range of future scenarios.
This material has been produced by Spire Capital, one of our investment partners who play a key role in our private market asset allocation strategies for clients.
If you are interested to learn more about how you can incorporate private markets assets within your portfolio, please talk to your Integro adviser. If you are not an existing client, get in touch via email at: [email protected].