Listed infrastructure: going, going, gone?

In July, the listed infrastructure community launched a trade body to help it remedy one of its greatest weaknesses: a lack of investor awareness of its supposed strengths. A white paper by Australia’s AMP Capital promptly followed, arguing that the asset class’ strengths made it an “untapped growth opportunity”. Some academics, however, are not so sure. In a paper released in June, Frédéric Blanc-Brude, of EDHECInfra, went as far as claiming that “there is no listed infrastructure asset class”.

To help us decide where the scales of truth should tip, it helps to examine what listed infrastructure claims as its unique selling points. Conveniently, the main ones can be encapsulated in a neat formula: “It offers defensive growth, attractive yield and also offers appealing diversification qualities, presenting a largely untapped opportunity for investors,” AMP Capital’s global head of listed infrastructure, Tim Humphreys, said in August.

The yield argument is almost certainly valid, especially considering the paucity of securities offering such characteristics in today’s low interest-rate environment. But that’s also a feature of your typical unlisted core infrastructure asset, so on this count listed infrastructure can’t really claim to be scoring a point against its private market equivalent.

Whether listed infrastructure securities are truly defensive and diversifying, meanwhile, has been questioned by Blanc-Brude and his co-authors, EDHECInfra associate research director Tim Whittaker and Simon Wilde, a senior managing director at Macquarie Capital who has written extensively for Infrastructure Investor on the performance of the asset class. “Listed infrastructure tends to be very high volatility, very highly correlated with the market; not at all what you think infrastructure should be like as an investment,” Blanc-Brude told us this summer.

CBRE Clarion’s Jeremy Anagnos, who we met this week, did not agree with these claims. Being listed, stocks simply display volatility on a more transparent manner than their unlisted counterpart, he says. The latter’s ‘unrealised volatility’ will simply become evident to investors when an asset is sold and traded. Meanwhile, listed stocks have for them that they are more liquid and accessible to smaller institutions who can’t buy big chunks of assets on their own.

These points certainly have some truth behind them. But then again, a number of platforms and funds are now precisely geared to cater for smaller investors, and it remains to be seen how liquid infrastructure securities performs when the market really freezes. While listed infrastructure does seem to have something that unlisted portfolios can’t quite replicate, we’re therefore still short of a knock-out argument.

This week Anagnos gave us one. With the staggering amount of dry powder now floating around, prices in the unlisted market are reaching new heights. Listed infrastructure, by contrast, is trading at a 20 percent discount, CBRE Clarion’s infrastructure chief told us. In a hint that unlisted funds may be starting to think the same, Global Infrastructure Partners recently bought 20 percent of Spanish-listed Gas Natural for €3.8 billion, he noted.

Anagnos’ argument hits home. But GIP’s latest deal raises some interesting prospects. If this valuation gap is indeed big enough to attract the attention of unlisted vehicles – small and big – it may be a matter of time before price pressure starts to rear its head in the listed world as well. Which would allow the sector’s early players to reap sizable gains, but also deprive it from what seems to be its most compelling selling point. Bottom line: the case for listed infrastructure exists – but its trade body may not have an eternity to convince skeptics.

Write to the author at matthieu.f@peimedia.com