Q&A – Cube Infrastructure Managers: Investing across the European infrastructure space

Cube Infrastructure Managers is an independent Luxembourgian management company focusing on investments in the European infrastructure space. 

Founded in 2007, Cube Infrastructure Managers has raised €4.0 billion (£3.4bn $4.4bn) through four active funds in the European infrastructure space. Their most recent acquisition was in May 2023, when they jointly acquired with Equitix a majority stake in RiverRidge, a waste management and energy recovery organisation in Northern Ireland. The acquisition is indicative of Cube's investment strategy in investing across the infrastructure value chain, with a focus on European infrastructure companies.

Inspiratia talks to Cube Infrastructure Managers concerning what technologies it has earmarked for future investment, the growth of the data centre market and the growing importance of ESG in its investment strategy.

What technologies has Cube earmarked for future investment? Are there any emerging technologies you see coming to the fore as investable assets? 

Since its inception in 2007, Cube has been investing in infrastructure addressing the essential needs of local communities with an objective to generate both yield and long-term capital appreciation. Over the past decade, digitalisation and decarbonisation have driven many changes and created opportunities for such investments across Cube's three key areas of focus: energy transition, telecoms & digital, and transport & mobility. Across Cube's funds, investments were made in areas capitalising on these changes, such as fiber-to-the-home, hydro, submarine cables, electric vehicle charging and data centres.

As technologies de-risk and gain brownfield character, we see the potential to look into other areas, such as energy storage, which supports the integration of renewables and grid stability integration. Within digital infrastructure, we believe there will be a significant need to roll out small cell networks deployed and run by private network operators. To reduce latency and bandwidth costs, we think edge data centres will also become essential going forward.

We expect to see further opportunities in smart cities, such as partnerships with municipalities to optimise the use of the existing street infrastructure to provide value-added services. For example, this could be multiuse of streetlamps for the densification of cellular networks or to provide electric vehicle charging and security surveillance.

Cube consistently monitors and analyses market developments to continue to identify new growth opportunities within European infrastructure while ultimately retaining a cautious approach when investing in new sectors and technologies. We conduct thorough research and analysis in order to gain deep sector knowledge, including market dynamics, growth drivers and contractual and regulatory frameworks. We carefully assess the risks and financial viability of each opportunity. We also seek insights from industry experts and senior advisers to complement our in-house expertise.

Sustainability and ESG is a critical tenant of Cube's investment strategy. How does the firm ensure that the companies it invests in adhere to its ESG guidelines?

At Cube, we treat ESG as a fiduciary duty and an operational lever to mitigate risk but also create value over the long term.

We believe it makes the most sense for us as an infrastructure investor to build and manage assets that meet the social and environmental challenges of tomorrow while providing an essential service to the public in the present. Infrastructure that does not provide clear positive outcomes for local communities is not viable as a long-term asset.

In practice, ESG considerations are integrated into our investment process and into the day-to-day management of our portfolio companies, for which Cube is usually the controlling shareholder. The process begins with ESG due diligence prior to acquisition to assess the current situation.

Post-investment, the investment team in charge of the portfolio company, jointly with Cube's ESG team, designs an ESG action plan based on the due diligence findings. This action plan is discussed with the management of the portfolio company to ensure it is understood and that it will be implemented. Progress on action plans, including KPIs, is monitored during the holding period and discussed regularly at the board level.

One example of how we engrain ESG into our portfolio companies is by linking ESG targets with financial performance. In Denmark, our bus line operator Umove hired an expert to facilitate the reduction of fuel consumption across its depots through training and campaigns. Each driver is now financially incentivised to reduce their fuel consumption. More broadly, across our portfolio companies, milestones in ESG action plans can be integrated into the annual variable compensation of the management, where relevant.

How does Cube Infrastructure Managers select their investment opportunities?

Cube targets essential European infrastructure assets with a clear buy-and-grow strategy in sectors driven by technological, environmental and social megatrends such as decarbonisation, digitalisation and urbanisation. Our key focus areas include energy transition, telecoms and digital, and transport and mobility.

We seek to acquire controlling stakes in under-the-radar small and mid-sized companies, often through proprietary transactions, and grow them into transformed and scaled platforms strategically positioned in the mid/large-cap space where they become visible to larger institutional investors. We achieve this growth by empowering local management teams and leveraging our operational and financial expertise and deep sector knowledge.

Through this growth, we generate strong value creation and attractive returns for our investors, as well as environmental and social benefits for the local communities that our infrastructure serves.

In March, Cube acquired a majority stake in GleSYS Holding. Are data centres a critical investment focus for Cube? What drew Cube to the Nordic data centre market?

Data centres are a key component of the infrastructure underpinning the digital transformation of our economies and are, therefore, an area of focus for Cube. Our portfolio now includes two state-of-the-art data centre platforms: firstcolo in Germany and GleSYS in the Nordics.

The Nordics are a stable region with favourable economic conditions, a business-friendly environment, and strong support for digitalisation across the region, particularly cloud adoption. The Nordics are, therefore, an attractive region for data centre operations, with a cooler climate allowing more energy efficient operations compared to warmer geographies. The Nordics also have abundant renewable energy sources, such as hydro and wind, offering a reliable and environmentally friendly power supply. These factors are important as energy consumption represents a major cost to operate data centres.

Local companies in the Nordics have good traction in moving to the cloud, and we expect this trend to continue providing steady growth for the next few years. However, digital transformation must go hand in hand with the energy transition, and this is where Cube wants to invest. GleSYS, for example, is using 100% renewable energy to power its data centres and recycles the heat produced by its Falkenberg data centre into a district heating network that serves the local community.

What makes data centres such a highly investable sector, and how can it continue to improve in efficiency? Are edge data centres a focus for Cube?

The digitalisation of the economy has made data storage an essential need of modern society, with datacentres becoming critical infrastructure. Data consumption will continue to be driven by the ongoing adoption of solutions for the Internet of Things, artificial intelligence, virtual realities, and big data analytics, which will bring significant market growth in the next few years. As datacentres play a mission-critical role for businesses and organisations, they are less susceptible to economic cycles, making them an interesting match to Cube's stability-focused investment approach.

Cube invests in platforms operating state-of-the-art datacentres and benefiting from a loyal and diversified customer base providing predictable and stable revenue streams. We also focus on scalability and expansion potential when assessing investment opportunities in the sector, as growth can only be realised if operators are able to scale their capacity as demand for data storage increases.

Datacentres can continuously improve their efficiency in several ways by optimising energy consumption. A few examples of this include using more efficient cooling systems, energy-efficient hardware (servers, networking equipment, etc.), optimising server and equipment utilisation, incorporating renewable energy sources, implementing Datacentre Infrastructure Management (DCIM) software, recovering waste heat, and optimising power distribution infrastructure. Regular maintenance, continuous equipment upgrades and employee awareness and training are also essential to optimise operational effectiveness.

Edge datacentres are becoming increasingly important as the demand for low-latency, real-time applications and services grows. This is an emerging area that Cube is monitoring.

In January, one of Cube's portfolio companies Kople acquired Bellona's charging network. What was the rationale behind the acquisition? How should the charging infrastructure be financed? What needs to be done for EV charging infrastructure to become a bankable asset?

Kople operates a fast-growing EV charging platform in Norway, currently the most advanced European market in terms of EV penetration rate. Kople covers a range of charging infrastructures, from fast chargers and destination charging to the installation of private charging hubs and commercial vehicle charging stations.

As part of Cube's "buy-and-grow" strategy for the platform, Kople acquired Bellona's nationwide charging network in January 2023 to further accelerate its expansion. Bellona's charging points are in well-visited locations complementary to Kople's existing network. Kople operated 379 charging points as of June 2023.

Cube generally adopts a cautious approach when it comes to financial leverage. However, we do raise debt to finance our assets when it makes sense from an operational flexibility and risk/return perspective. We are constantly analysing potential debt options for our EV charging platforms.

In order to be bankable, we believe an EV charging platform will have to demonstrate a strong operational and financial track record underpinned by a supportive regulatory environment that encourages EV adoption and charging infrastructure development and, ideally, a longer-term power purchase agreement.

What is the optimal placement of charging stations? And who should own and operate the charging infrastructure?

The optimal placement of EV charging stations depends on several factors, such as the targeted user base and the preferred charger technology. Charging stations should be easily accessible and conveniently located for EV owners in high-traffic areas such as shopping centres or close to high-density areas and public transportation hubs with dwell times of 30 minutes to four to five hours. EV charging stations along highways and intercity routes are also essential for long-distance travel, with fast and ultra-fast chargers usually favoured to limit waiting time. Furthermore, destination charging points, i.e. charging stations near popular destinations like hotels and tourist attractions, must cater to the needs of EV owners who may require charging while they are away from home and visiting specific sites; a use case compatible with slower charging technology.

The ownership and operation of EV charging infrastructure can involve various stakeholders and models. The optimal approach may vary depending on market dynamics, regulatory environment and funding mechanisms. It is worth noting that a mix of ownership models can coexist in a given region, and collaboration among stakeholders -including governments, utilities and private entities- is often necessary to ensure a comprehensive and interconnected charging network that meets the growing demand for EV charging services. Kople is a good example of this as the platform is co-owned by Cube and Ringerikskraft, a Norwegian utility company owned by local municipalities and pension funds.

What are the challenges in expansion into new jurisdictions?

Cube seeks to source under-the-radar investment opportunities on a proprietary basis, so it is of utmost importance for us to develop our local market knowledge and relationships before entering a new jurisdiction.

We therefore take a cautious approach when investing in new jurisdictions, carefully assessing the local regulatory and legal environment as well as political and policy risks. When investing outside the eurozone, we put appropriate currency hedging strategies in place. We will also assess local financing and funding sources when considering an investment in a new jurisdiction.

What are the biggest barriers to smart city development? What form of financing is needed to ensure its successful development?

Our cities are evolving at an unprecedented pace due to growing levels of urbanisation, demographic and societal shifts, and increased focus on minimising our collective environmental impact. Cities are at the apex of modern infrastructure, which means that innovation is required across the spectrum to ensure that our cities develop as effectively and sustainably as possible.

The development of smart cities is challenging because of its holistic nature. Smart city development requires an all-inclusive approach encompassing funding, policy reforms, technological innovation, stakeholder engagement and public outreach. Collaboration between governments, private sector entities, community organisations and citizens is crucial to developing smart cities.

Private finance will continue to play an essential role in developing smart cities, complementing public funding and bringing several benefits, such as operational expertise, innovation and risk sharing. Public-private collaboration supported by appropriate risk-sharing structures and transparent regulatory frameworks is crucial for successful smart city development leveraging private financing. Cube seeks to build strong relationships with local public authorities to ensure lasting cooperation and dialogue.

At Cube, we are ideally placed to provide a platform that brings capital and capability to smart city development initiatives, and we are already making an impact in this area with our EV charging networks and Internet-of-Things assets, amongst others.