Sector Specialist: Infrastructure launched 11 years ago is now 4th largest investment company sector.
HICL Infrastructure was the first infrastructure investment company to launch in March 2006, raising £250m. Eleven years later it has grown to be the eighth largest investment company with £2.45bn total assets under management. The infrastructure sector has grown from strength to strength and is now the fourth largest investment company sector, consisting of seven investment companies with total assets of almost £9bn at the end of April 2017.
The Sector Specialist: Infrastructure has raised nearly £800m so far this year and over the last five years the share price total return for the sector is up 81% (to end of April 2017).
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC) said: “The closed-ended structure of investment companies is particularly suited to illiquid assets such as infrastructure. Investment companies are listed companies on the stock exchange so investors can always buy and sell shares freely. Investment company managers do not have to manage inflows and outflows and can take a long-term view of their portfolios, without being constrained by the illiquid nature of the asset class.
“Infrastructure has proved to be a popular sector for income seeking investors over recent years and the sector has grown rapidly in size. With the sector having a dividend yield of almost 5%, it’s not hard to see why.”
Duncan Ball, Co-CEO of BBGI SICAV S.A. said: “Investor interest in the infrastructure sector remains very strong. In a low interest rate environment, PPP [public-private partnership] assets with stable, predictable, inflation-linked cash flows derived from creditworthy government or government-backed counterparties are seen as an attractive investment proposition by many investors. In addition, a greater acceptance and understanding of infrastructure as a mainstream asset class and key component of a well-diversified portfolio have caused more investors, especially those with long-dated liabilities to match, to increase their allocations to the sector.”
On Monday 15 May, the AIC hosted a media roundtable with Harry Seekings, Director, InfraRed Capital Partners, Investment Advisers to HICL Infrastructure; Greg Taylor, Co-Portfolio Manager of Sequoia Economic Infrastructure Income and Bernardo Sottomayer, Partner at 3i Group plc, Investment Advisers to 3i Infrastructure plc, to hear more about current opportunities, investor demand and the outlook for the sector. Their comments, along with Duncan Ball, Co-CEO of BBGI SICAV S.A. and Giles Frost, Director of INPP have been collated below.
Where are the opportunities?
Harry Seekings, Director, InfraRed Capital Partners, Investment Advisers to HICL Infrastructure said: “InfraRed Capital Partners, the Investment Adviser, is following a clear acquisition strategy for HICL which is focused on three core market segments: PPP projects, regulated assets and demand-based assets. Overall deal flow is reasonable but we find that the mix differs between geographies, e.g. secondary PPPs in the UK, regulated assets in the UK and Europe and primary PPPs in North America. Competitive pressure remains and pricing discipline is fundamentally important.”
Bernardo Sottomayor, Partner at 3i Group plc, Investment Advisers to 3i Infrastructure plc said: “We believe the infrastructure market offers attractive investment opportunities, although with interest rates still near all-time lows, demand, in particular for large regulated infrastructure assets, continues to be strong driving high prices and low projected returns.
Against this backdrop, we are focusing on areas of the infrastructure market which offer better risk-adjusted returns, such as infrastructure businesses with some demand or operating risk. These businesses, whilst still displaying infrastructure resilient type cash flows, can be managed actively to enhance returns.
3i has a long and successful track record of investing in these markets and its 25-strong investment team continues to selectively assess a broad range of opportunities across our key markets.”
Giles Frost, Director of INPP said: “Well-established regulatory regimes increasingly provide for an enhanced pipeline of investment in those operational and construction assets whose risks are mitigated by long-term, highly predictable and secure-cash flows in sectors such as waste water, utilities and energy distribution.”
Greg Taylor, Co-Portfolio Manager of Sequoia Economic Infrastructure Income said: “Sequoia continues to see good investment opportunities for the Sequoia Economic Infrastructure Income fund, which invests in economic infrastructure debt. The fund has a diverse portfolio of 44 underlying assets, including assets located in the US and Canada, the UK and Western Europe.”
Duncan Ball, Co-CEO of BBGI SICAV S.A. said: “A key component of our growth strategy has been to consider opportunities in creditworthy countries outside the UK. Often the competition is not quite as intense and more attractive pricing and terms can be obtained.
“Another key component of our growth strategy will be to consider projects in the bidding/construction stage, as we believe the pricing on construction projects is more attractive on a risk-adjusted basis. Often the competition for construction assets is less intense as some investors require current yield, do not have sufficient and adequate asset management staff to oversee construction assets, or have mandates that restrict investment at this stage.
“BBGI has also used its strong PPP credentials to make it an appealing partner to construction companies who sometimes lack long-term ownership credentials, which are often required as part of the pre-qualification processes run by procuring government authorities. Using this approach, BBGI has been shortlisted for a number of opportunities over the past two years and will continue with this strategy.”
Outlook for the sector
Giles Frost, Director of INPP said: “The outlook for infrastructure investment in developed markets globally remains buoyant as governments increasingly look to private capital to fund high-quality, low-risk and long-duration infrastructure projects that in turn provide stable and secure returns to those investors seeking long-term income.”
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- Dividend yield data correct at 11 May 2017.
- The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed ended investment companies, incorporating investment trusts and other closed ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help Members add value for shareholders over the longer term. The AIC has 344 members and the industry has total assets of approximately £164 billion.
- Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.