The battle for listed infra goes nuclear

We media types love a good fight and right now there’s no better show in town than The Battle for Listed Infrastructure.

In the red corner is EDHECinfrastructure, an offshoot of the well-regarded, not-for-profit EDHEC Business School, created to “address the profound knowledge gap faced by infrastructure investors”. In the blue corner, weighing about $57 billion in AUM, is listed infrastructure, derided by EDHECinfra as “fake infra” and a potential danger to the asset class in general.

EDHECinfra – which derives three-quarters of its funding from the Business School and public institutions, but has also received backing from industry stalwarts Meridiam, Campbell Lutyens and Natixis (though not, it points out, for its research on listed infrastructure) – doesn’t believe listed infrastructure constitutes a standalone asset class and doesn’t agree that it can deliver the same performance as unlisted infrastructure.

Unsurprisingly, listed market participants beg to differ, as evidenced by comments made at our recent listed infrastructure roundtable (you can also read EDHECinfra managing director Frédéric Blanc-Brude’s response to some of those arguments here).

This week, though, EDHECinfra upped the ante by announcing it has written open letters to the chairmen of the European Securities and Markets Authority and the Securities and Exchange Commission asking them to “take measures against the risk of investment in so-called ‘listed infrastructure’”. In short, EDHECinfra argues there’s enough “misselling” and “false claims” around listed infrastructure to warrant regulatory intervention.

To run with the Trump metaphors the institute seems fond of, this escalation is the equivalent of going from dismissing listed infrastructure as ‘fake infra’ to calling it ‘crooked listed infra’, falling just short of chanting for regulators to ‘lock them up’.

The immediate questions such a move raise are: do we really need regulatory intervention to protect investors against the “dangers” of listed infrastructure? And do we want regulators dictating a definition of ‘investable’ infrastructure?

EDHECinfra points out that listed infrastructure amounts to $57 billion in AUM today and has been growing by 15 percent annually for the past decade. The majority of that AUM was funded by retail investors, but institutional investors now account for about a third of it.

While Blanc-Brude previously expressed concern about retail investors’ ability to understand just “what is being offered under the label ‘infrastructure’”, the thrust of EDHECinfra’s letter to regulators seems to centre on institutional investors.

Here’s the problem, though: institutional investors are sophisticated players that should be capable of separating the wheat from the chaff. As EDHECinfra admits, “listed infrastructure managers are not all equally responsible for the state of the sector”. However, it then goes on to argue that “it is impossible for investors to be able to tell the difference between these products, because they all have the same qualifiers”.

Well, EDHECinfra certainly seems to have been able to sift the good from the bad – even if it doesn’t name names – so why would it assume others are incapable of doing the same? And if it genuinely believes they’re not able to, why not provide them with the requisite tools?

The other aspect of its letter that makes us queasy is when it states many of the stocks listed managers have invested in over the past decade “cannot possibly be considered to be ‘infrastructure’ under any definition”.

That argument can easily be applied to the unlisted side of the equation, though. As Hostplus head of infrastructure Jordan Kraiten recently told us: “Someone might see a vending machines business as infrastructure. Others will say it’s got to be an airport or a seaport.”

Do we really want to encourage regulators to set that definition in stone? A well-functioning market should be able to naturally draw those lines by voting with its wallet.

Calling for regulatory intervention seems like the nuclear option, to be pursed when everything else fails. Because once that genie is out of the bottle, there’s no guarantee it will set its sights on listed infrastructure alone.