What do LPs think about infra-like assets? Hostplus is open to recommendations

CIO Sam Sicilia says the superannuation fund will consider non-core and infra-like assets, but only on a case-by-case basis.

The fast-growing ‘infrastructure-like’ market continues to be hotly debated, with an increasing number of managers looking to it as they seek to deploy the seemingly ever-growing amounts of capital being raised.

Infrastructure Investor is asking LPs what they really think about these assets and whether they are happy with how their managers are communicating the opportunities and risks that they present.

In the second of a series of Q&As, we quizzed Sam Sicilia, chief investment officer of Australia’s A$37 billion ($26.4 billion; €23.0 billion) Hostplus.

Sam Sicilia

Q: What’s your view on so-called infrastructure-like or infrastructure-adjacent investments?

SS: As a long-term investor with strong cashflows and a high tolerance to illiquidity, Hostplus will consider and diligently weigh up the risk/return profile of most infrastructure opportunities presented to us in the market.

While the majority of Hostplus’ infrastructure asset allocation is prominently tilted towards more traditional or core investments – such as airports, seaports, toll roads, rail, gas, electricity, telecoms and wastewater – we are open to considering our fund managers’ recommendations on non-core assets, including land rights, data centres, renewables and carparks.

However, these are considered on a case-by-case basis and largely depend on the way their contracts are structured. As our average member is in their early 30s, we seek to deploy patient capital over 30- to 40-year investment horizons.

Q: Do you consider these types of assets because of the amount of capital coming into the asset class and the pressure it puts on returns – or would you consider them regardless?

SS: While there has been a significant amount of capital flowing into the asset class, which has placed downward pressure on achievable returns, this trend has not changed our long-term investment strategy, heavily weighted towards unlisted assets. If the asset is in our members’ best interests, and we can acquire the investment on the right business plan and appropriate risk/return profile, then we will do so. 

Q: When it comes to calling an investment ‘infrastructure’, what’s the trade-off you are prepared to accept between an investment’s contractual characteristics and the actual underlying asset?

SS: Infrastructure is a difficult asset class to pin down and define. In most respects, you know it when you see it.

While core infrastructure assets traditionally have had longer-term contracts and high barriers to entry, some industries simply do not operate in a long-term contract world. As a result, an asset could still have strong core infrastructure characteristics (eg, high barriers to entry), but only contract with its customers on a short-term basis.

These investment opportunities really need to be reviewed on a case-by-case basis, before considering a trade-off (if any). 

Q: What kind of boxes does an infra-like investment need to tick for you to be comfortable with it?

SS: We angle our portfolio towards core infrastructure assets that have greater defensive characteristics whereby they generate long-term predictable cashflows, built on the back of high barriers to entry and long-term contractual positions. However, infrastructure is a hard asset class to define – meaning it is not possible to simply state that all airports and/or seaports are ‘infrastructure’, because they are not all the same.

It is therefore important to assess each investment opportunity individually, paying particular attention to the acquisition business plan assumptions, before defining its characteristics.