He suggests: “We believe the investment teams at these trusts have both the expertise and economies of scale to take sole - or significant - ownership in an infrastructure project at a sensible valuation, and where appropriate can also manage the project proprietarily.”
Turning to listed infrastructure projects held in open-ended funds, Mr Burniston adds: “While the underlying assets may be real infrastructure and therefore inherently have the defensive characteristics we look for and would perform resiliently in the long run, the fact of the shares being listed on the main stockmarket means these companies act very similarly to equities.”
If the thought of equity-like risk does not appeal, then infrastructure funds may not be the right type of exposure.
Seven Investment Management (7IM) has chosen to get its exposure to diversified infrastructure portfolios through investment trusts.
Simon Moore, senior investment manager at 7IM, explains the appeal in availability-based infrastructure projects is the guaranteed government-backed payments and a high level of inflation linkage.
While the rate of inflation in the UK is climbing, staying above the Bank of England’s 2 per cent target, beating inflation may well be a high priority for advisers’ clients.
Mr Moore says: “These give us exposure to government cashflow, currently offering significantly higher yields than from UK gilts for example, with little correlation to equity markets.”
London-listed infrastructure investment trusts include:
- 3i Infrastructure
- BBGI
- GCP Infrastructure
- HICL Infrastructure
- International Public Partnerships
- John Laing Infrastructure
- Sequoia Economic Infrastructure Income
He also notes: “It is relatively straightforward to put together a portfolio of global listed companies that are loosely related to infrastructure in the widest sense. There are several daily dealing open-ended funds with ‘infrastructure’ in the title.”
Allocating to both
But as Mr Langley observes, listed and unlisted infrastructure assets are simply alternative ways for investors to gain exposure to the same asset class, with the same attractive characteristics.
He explains: “It is important to recognise that ultimately investment decisions in both listed and unlisted markets are based on the same criteria: in both cases, the aim is to identify investments which meet the investor’s long-term requirements and which generate a return that is sufficiently high to offset the risk.
“In both cases, the most important determinants of value rely on long-term assumptions with the same uncertainties. Undertaking detailed [due] diligence and considering longer term risks and opportunities is therefore crucial regardless of ownership structure.”
He urges advisers and their clients to think of unlisted and listed assets as “complements rather than substitutes”.
