Regular followers of our weekly letter will have noticed that we went silent last week. There was a good reason for that and, hopefully, you are making the most of our redesigned website, which launched last Thursday (if you could spare a few moments, we’d also love to get some feedback on how you find Infrastructure Investor).
But in the fast-paced world of infrastructure investing, that also means there were quite a few developments that took place since then. Here are three you should keep in mind.
Bringing boring back
“The pendulum is swinging back towards core, core-plus, diversified exposures. There was a time for more opportunistic investing, but I would say for the next three-to-five years, the focus on diversified cashflow, generative, stable, total-return type investing is going to be key.”
Thus spake Anton Pil, JPMorgan Asset Management’s global head of alternatives, in this month’s keynote interview. Using the US as an example, Pil pointed out that infrastructure stands to win big if inflation picks up above expected levels. For investors like JPM, with substantial exposure to contracted and/or regulated assets, the benefits are obvious: “We believe that our cashflows will increase about 80 percent of what inflation goes up,” Pil neatly summarised it.
That’s already evident on this side of the pond, where inflation in the UK is running at a higher-than-expected 1.6 percent.
But it’s not just inflation, though: infrastructure also stands to benefit from the wider thrust of monetary policy and the impact it will have on investors’ portfolios. “If [monetary policy] results in a broad repricing of fixed-income asset classes, then what can you own in a portfolio that’s a counterbalance to a predominantly equity exposure?”
It’s hard not to look at vehicles like Macquarie’s Super Core fund – which may ultimately raise over €4 billion from investors looking for lower-return, cashflow-generating, regulated-type assets – as managers creating new products to answer that question.
Investors keen on infra, less so on government infra plans
If there’s a main takeaway from Pil’s keynote, then, it’s that, however promising Donald Trump’s infrastructure plans might be (and they’re currently looking like a staging of Much Ado About Nothing), macro policy stands to have a much bigger impact on the asset class.
Interestingly, a survey published this week by the Global Infrastructure Hub and EDHECInfrastructure revealed that, while 90 percent of 186 investors plan to increase their exposure to infrastructure, they’re not doing it on the back of governments’ infrastructure plans. In fact, it was notable that around 50 percent were ambivalent about plans in the US, Canada, Australia, EU and the UK, with a small minority going as far as claiming some of these initiatives generated more risk than rewards.
That’s somewhat in line with anecdotal comments from the likes of Global Infrastructure Partners or Blackstone, which, while expressing interest in government plans like the US’s, were keen to stress their investment strategies did not depend on them.
Contrast that with comments made in this week’s Financial Times by Olivier Brousse, John Laing’s chief executive, who came off a touch desperate with his plea to the UK government: “If the current PFI framework isn’t fit for purpose then let’s completely rethink it to make it work.”
Developers, of course, are in the new-build game and therefore desperate for a pipeline (just look at the spate of litigation around European transport PPPs, as eager parties fight to the death not to be excluded from procurement processes); the majority of managers and investors are not.
Don’t forget to submit your nominations
OK, we only published our call for nominations for our annual Global Awards this week, but it bears repeating. We are currently drawing up shortlists for 50 award categories, so if you want to alert us to your achievements, the time is now and you should do so by clicking here.
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