Inflation vital to UBS head Moy

Managing inflation is in. But UBS global infrastructure chief Paul Moy (pictured) warns against simplistic notions of infrastructure's hedging power and says the asset class is no panacea.

Paul Moy is apt to point out that investing in infrastructure is a viable “hedge” against inflation, but not a magic bullet.

“It can be too simplistic [a definition],” said Moy, global head of infrastructure for UBS.

His admonition is spelled out in Measuring Inflation Exposure and Managing Inflation Risk Through Infrastructure, a white paper UBS recently published.

Moy, a 22-year buy side veteran, said UBS based its report on investor opinion. Speaking to Infrastructure Investor from London, Moy called institutional clientele “inflation-aware”.

Post-global financial crisis, inflation risk is a prominent institutional investor concern, Moy said, leading infrastructure to gain traction as a risk management tool, in addition to becoming widely acknowledged for its real return potential.

“If managed right,” Moy agreed, “infrastructure is a valuable tool”.

But, Moy stressed, no asset class is failsafe: “Gold and silver are supposed to hedge inflation. That is not always universally true. You have to consider each asset”.

Often overlooked in assessing an infrastructure asset is operating cost, capital expenditure and capital structure, which Moy cited as a factor in equity return. Given that, a strong inflation-linked return in infrastructure is usually a by-product of careful management at the portfolio and asset level, Moy said.

Moreover, Moy credited infrastructure for offering a lack of correlation to equity and fixed income.

“You can invest in listed infrastructure for real return,” he said. “Or core infrastructure to manage inflation”.