The private equity firm that created ⁠Digital Realty ⁠sees a "wealth of opportunities" in digital infrastructure, but avoids hyperscaler mega-projects, says Mark Prybutok, a Managing Director at ⁠GI Partners⁠ and Head of the Data Infrastructure strategy.

In 2001, GI Partners made its very first investment as a firm in a portfolio of distressed data centers reeling from the dotcom crash. In 2004, that portfolio was listed publicy as Digital Realty, now the world's largest data-center REIT.

Today, GI Partners has $45 billion in assets under management, and oversees three strategies: private equity, real estate and digital infrastructure. In a wide-ranging interview with Cool Vector, Prybutok shares his excitement about investing in a rapidly expanding market, but offers guidance to investors about nuanced differences between business models, locations and commercial strategies.

Prybutok also describes GI Partners' strategy in digital infrastructure as being more akin to private equity, with a focus on operating businesses, management teams and value-add strategies.

Among the key takeaways from the interview:

Digital infrastructure deserves a substantial allocation in the portfolio. As digital giants drive global economic growth, Prybutok argues digital infrastructure should potentially command a larger allocation in institutional portfolios than the modest levels seen today: “If you think about infrastructure as the physical underpinnings of the economy… why shouldn’t it be significantly higher than 20%, 25%?”

Success in digital infrastructure requires sector nuance. With growing competition from generalist investors, GI Partners differentiates itself through deep sectoral focus and an ability to identify winners in niche sub-markets: “We’re identifying businesses that we in particular think are going to be the winners within a sub-sector of a sub-sector.”

Edge infrastructure is a bigger opportunity than centralized mega-infrastructure. While hyperscaler campuses get headlines, GI sees greater long-term opportunity in edge infrastructure tailored to mid-sized businesses and real-world IT needs: “There’s a massive opportunity, multiples larger in aggregate, than these massive concentrated AI training data centers, but located closer to those end use points.”

Digital infrastructure should be tech-enhancing, not tech-exposed. GI Partners focuses on durable physical infrastructure, steering clear of reliance on rapidly evolving technologies that risk obsolescence: “You want to make sure you’re not getting stuck investing in a generation of technology that is then made obsolete by improvements that happen in the next generation.”

AI and IoT are fueling an urgent need for more infrastructure. From video surveillance to industrial automation, AI’s real-world applications are just beginning, creating vast demand for data centers and networks: “We see real-world examples… where the number of people reviewing and responding to alerts is going down exponentially as the AI improves.”

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