With 2018 proving to be a record fundraising year for unlisted infrastructure – and a volatile one for global equities – we were curious to see how listed infrastructure was holding up.
After all, the nascent asset class still divides opinion over its relative merits, especially in the wake of the controversial #FakeInfra debate. Setting that aside, there is still much less awareness of listed infrastructure than there is of its unlisted counterpart.
With that in mind, we gathered four listed infrastructure professionals from AMP Capital, Atlas Infrastructure, CBRE Clarion Securities and M&G Investments at AMP Capital’s London offices to discuss what to expect in 2019. Here are three takeaways.
Core assets on the unlisted side are being bid at 7-8 percent returns gross of fees. It is therefore unsurprising to find our participants making the case for listed infrastructure as a better way of accessing that core exposure.
“It’s very difficult to get a large allocation to core infrastructure on the direct side now,” said Giuseppe Corona, AMP Capital’s head of global listed infrastructure. “So, if you want exposure to core infrastructure, listed allows you to get that at an attractive valuation.”
Anish Butani, director for private markets at bfinance, made a related argument in an article written last November. At the time, he pointed out that “listed infrastructure funds appear to be more exposed to utilities – a conventional infrastructure sector by anyone’s definition – than many of their unlisted fund counterparts”.
Our participants echoed another point made by Butani: that in some regions, such as the US, listed managers have an easier time accessing core assets like utilities, railways or airports than their unlisted counterparts do.
Refer them to a specialist
“The terrific thing of being a specialist in a space where 95 percent of the ownership is non-specialist is that it gives you a huge opportunity for alpha,” argued Atlas Infrastructure’s David Bentley.
Of course, it might not surprise you that a roundtable full of sector specialists would make the case for specialisation. Yet our participants offered some compelling arguments.
For starters, generalists tend to just be rotating in and out of stocks, with less of an appreciation for certain trends, such as the energy transition or digital infrastructure. According to our participants, not enough attention is being paid to how these trends can, over the longer term, generate higher returns for the firms active in these sectors.
“I often think the market doesn’t pay attention on account of being very short-term focused,” said Alex Araujo, manager of the M&G Global Listed Infrastructure Fund. “They’re just looking at beating the next quarterly earnings.”
But specialists are also better placed to price in certain infrastructure risks – such as regulation – than more generalist teams, which might not have the expertise to evaluate them.
Band of brothers
Surely, if there is one place where unlisted managers have a leg up, it is in their ability to flex their asset management muscles and directly influence the businesses they buy into. Listed managers, by contrast, can come across as more passive.
Our participants, however, were keen to point out that there is quite a bit that listed managers can do to influence the businesses they invest in. This includes sending open letters to boards, engaging with other shareholders and, if need be, using regulatory or legal channels to gain greater representation and influence outcomes.
The universe of specialised listed infrastructure managers is quite small and well aligned. This means they are not averse to banding together if they wish to achieve a certain outcome. And since they are bringing long-term capital to the table and a specialist’s appreciation for the companies they invest in, they tend to enjoy a decent amount of goodwill from these firms.
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