Around the world billions of people rely on infrastructure to live and do business. From powering up electricity grids to the water we drink, infrastructure assets are the backbone of any thriving society.
As a consequence of the need for increased private investment in infrastructure, it is emerging as an investment class that has the potential to deliver a combination of stable income and predictable growth.
What is infrastructure?
Infrastructure assets include roads and railways, airport services, marine ports & services, utilities (electric, gas and water), oil and gas transportation. They are essential services that we use and pay for everyday.
Governments have been under-investing in essential infrastructure for decades. Many assets built in the 1950s and 60s are coming to the end of their expected lives while population growth and global development mean demand continues to grow.
The Organisation for Economic and Co-operative Development (OECD) estimates that developed countries will need to spend over USD 70 trillion just to maintain the current level of infrastructure productivity. But ageing populations and rising costs mean that a greater share of public funds need to be directed to health and welfare initiatives. This has led to a growing market for private investment in infrastructure, including recent high profile investments in airports and water companies.
Infrastructure looks set to become a core long-term asset class. With the demand for additional and improved infrastructure certain to grow, and the need for private investment increasing, excellent investment opportunities will emerge.
Why are infrastructure assets attractive?
Infrastructure securities are attractive due to the essential nature of the assets and the markets they operate within. They display a number of attributes that can make them compelling investments.
- High barriers to entry e.g. the monopolistic nature of electricity and gas distribution networks; anti-competition clauses on toll roads; flight restrictions on city airports.
- Pricing power e.g. regulated and inflation linked returns offered by transmission pipelines or toll charges.
- Predictable cash flows e.g. ongoing demand for basics such as electricity, gas and water; commuter traffic through congested corridors.
Pension fund managers are starting to recognise the value of infrastructure assets in protecting long-term liabilities from the impact of inflation. The emergence of listed funds is now providing retail investors with the means to access this new asset class.
Listed or unlisted?
There are two ways to invest in infrastructure – listed or unlisted funds.
Unlisted funds look to invest directly in infrastructure assets and adopt a hands on approach, becoming involved in business strategy. This level of involvement typically means that unlisted funds only manage a small number of assets. The sheer size of investment needed to purchase assets mean that unlisted funds have traditionally only been available to large institutional investors.
Listed funds on the other hand typically offer a portfolio of 30-60 infrastructure companies diversified by sector and country. Listed infrastructure securities offer a number of advantages, such as diversification, liquidity and transparency, making them more attractive to retail investors.
First State Global Listed Infrastructure Fund
The new First State fund will invest in a diversified portfolio of listed infrastructure related securities from around the globe.
- Active, bottom-up stock selection process
- Market underestimates the level and quality of sustainable free cash flows
- High conviction stock positions integrated with portfolio management risk controls
- Preference for securities that control assets with monopoly characteristics
The First State Global Listed Infrastructure Team
The First State Global Listed Infrastructure Fund will be managed by Peter Meany and Andrew Greenup.
For over 10 years, Peter Meany, the Portfolio Manager, has closely analysed companies that have set best practice on everything from airport retail development to electronic toll collection, from mezzanine debt structures to tax efficient holding companies. As a result we are in a strong position to assess the strategic direction and earnings potential of infrastructure companies.
For further information on the infrastructure investment and the First State Global Listed Infrastructure Fund:
This is only directed at investment professionals and is not intended for, and should not be relied upon by private investors.
This commentary does not constitute investment advice and should not be used as the basis of any investment decision, nor should it be treated as a recommendation for any investment.
Issued by First State Investments (UK) Limited, authorised and regulated by the Financial Services Authority and a member of the IMA. Registered No. 2294743 England and Wales. Registered office 3rd Floor, 30 Cannon Street, London, EC4M 6YQ. Entered on the FSA Register, registration number 143359.
The Aviva Investors Multi-asset Funds (MAF) target equity risk rather than absolute volatility. Thomas Wells, Multi-asset Fund Manager, explains that while absolute volatility varies significantly over time, the inherent risk of investing in equities remains relatively constant.
Will remain until completion of OM's managed separation
Dispute over structure of combined group
Financial Guidance and Claims Bill
Favorable tax treatment