WATCH: Beware end-of-cycle investments caught in a liquidity squeeze

Opportunistic development infra might have benefited from multiple expansion, but as the cycle turns, JPMorgan Asset Management's Anton Pil argues it's regulated cashflows that give the asset class the stabilising factor LPs want in their portfolios.

Video transcript

“Probably all managers have gained from multiple expansion, and I would say that’s not just an infrastructure issue. That is true across equities as well. And I do think that opportunistic development infrastructure, in particular, has gotten a disproportionate amount of that gain, because that’s how you’re actually monetising your asset. You’re actually building the asset or developing the asset, usually you have a decent amount of leverage. And so, having multiple expansion can be a windfall from a return standpoint.”

“I do think, though, that there are also parts of infrastructure that people need to be a little bit more wary of. I think if you start seeing too much leverage, I think if it’s taking on a lot of development risk, those are the sort of end-of-cycle investments that could get caught up in a liquidity squeeze that’s coming over the next couple of years.”

“We would argue that owning infrastructure is for the stable cashflow associated with the assets rather than the potential capital gain associated with the asset. Not to say that there won’t be capital gains, but I think the stabilising factor of infrastructure in a portfolio comes from a set of typically regulated cashflows that will be very stable through time and usually less cyclical. And that’s a lot of the reasons why people want to own this asset class, more so than capital gains.”

For more, read our November keynote with Anton Pil, the man at the helm of JPMorgan Asset Management’s $130 billion global alternatives business.