Infrastructure investment trusts offer protection from inflation as Iran conflict pushes prices up

Annabel Brodie-Smith, Director of the Association of Investment Companies (AIC), said: “Investment trusts have a proven record of managing crucial infrastructure. These investment trusts can deliver inflation-linked income for investors, often backed by long-term government contracts. With inflation rising due to the Iran conflict, investors should consider infrastructure investment trusts which provide some protection from the corrosive effect on their returns.” 

The Association of Investment Companies (AIC) asked the managers of leading infrastructure investment trusts what has been driving their returns, why their trusts are worth considering and the prospects ahead for the sector. Their answers are collated below. 

What has driven the recent strong performance of your trust?

Muhammad Anwer, Chief Financial Officer for International Public Partnerships (INPP), said: “First, around 99% of our revenues are contracted or regulated, with 0.8x inflation linkage. That means we do not take significant pricing, usage or generation risk. Second, we have realised over £440 million of mature assets since mid-2023, each one at or above the value we held it at, and we have committed to reinvest around £480 million into new opportunities at an average return above 11%. Third, the portfolio simply kept performing, supported by a mature asset base, strong counterparties, active asset management and consistent delivery.

“This can be seen in INPP’s returns. The total shareholder return has run at an average of more than 9% a year since June 2023, the period over which our recycling programme has been at work. Furthermore, we have been able to pay a dividend that has risen by at least 2.5% every single year since we listed in 2006.”

Steve Cook, Head of Portfolio Management at SIMCo, the investment adviser to Sequoia Economic Infrastructure Income Fund (SEQI), said: “SEQI’s strategy currently delivers cash-covered dividend yield of approximately 8%. This appeals to many investors who are looking for income and resilience. We are highly diversified by asset class and geography, and our focus is on shorter-term debt which provides greater certainty and adaptability.”

Edward Hunt, Fund Manager of HICL Infrastructure, said: “HICL’s performance has been driven by a combination of strong operational delivery, active asset management and disciplined capital allocation. Since IPO, HICL has generated around 12p per share of NAV outperformance through selective disposals completed above the value on the balance sheet. Most recently, the sale of our interest in the A63 motorway was completed at a 21% premium to NAV.”

Richard Sem, Partner and European Head of Infrastructure at Pantheon Ventures and Manager of Pantheon Infrastructure (PINT), said: “Performance has been driven by robust earnings growth and capital expenditure deployment along with a strategy to invest in growth assets across different sectors. Realisations have proved that PINT’s approach works: the partial sales of Calpine and Intersect Power validated the model to invest in assets with significant value creation potential, and to crystallise that benefit through selling them. 

“This has been welcomed by shareholders and we’ve seen share prices rise with demand. Our strategy, alongside the work we have done to educate and attract new investors, has helped to narrow the discount.”

Robyn MacHugh, Investment Adviser to GCP Infrastructure Investments, said: “Our performance reflects real progress on the capital allocation policy with effective active management of a variety of assets and a run of disposals, all at or above net asset value (NAV).

“The proceeds have been used to reduce GCP’s revolving credit facility balance to nil and return capital to shareholders through buybacks. This has been well received by the market with positive feedback from investors and a narrowing discount.”

How can infrastructure investment trusts help protect investors’ money from inflation?

Steve Cook, Head of Portfolio Management at SIMCo, the investment adviser to Sequoia Economic Infrastructure Income (SEQI), said: “For SEQI, there are several potential protections against inflation. SEQI currently pays a strong, cash-covered dividend of about 8% – that is about 5% more than UK inflation. So, with a simple strategy of reinvesting 40% of the dividend and keeping the other 60%, an investor can look to maintain the real value of their investment and at the same time enjoy an income of about 5%.

“Moreover, if inflation does increase, the likely policy response from the Bank of England would be to increase interest rates. That benefits debt funds like SEQI, since interest income on floating-rate lending can increase so there is a natural hedge against rising inflation.”

Robyn MacHugh, Investment Adviser to GCP Infrastructure Investments, said: “Infrastructure is a naturally defensive asset class as the underlying projects are usually highly contracted, with long-term, stable cash flows that are often linked to inflation. Therefore, in a high inflation environment, infrastructure trusts are well placed to protect the real value of investors’ capital, where more conventional fixed-income or equity holdings might otherwise be eroded. In our trust, 49% of the loans in the portfolio benefit from some form of inflation protection.”

Muhammad Anwer, Chief Financial Officer for International Public Partnerships (INPP), said: “INPP’s inflation protection is written into the contractual and regulatory arrangements themselves. So when inflation rises, our income rises with it automatically, by formula, and it does so without relying on how much people use the asset, how many passengers travel, or where power prices sit.

“This is what has allowed us to raise the dividend by at least 2.5% every single year since we listed in 2006 – a record that is the longest unbroken run among UK listed infrastructure and renewable energy trusts.”

Edward Hunt, Fund Manager of HICL Infrastructure, said: “Many infrastructure assets have revenues that are either directly linked to inflation or benefit from regulatory frameworks that allow inflation to be reflected in future revenues. As a result, periods of higher inflation can support growth in the cash flows generated by the underlying assets, helping to preserve the real value of shareholder returns over time. 

“For HICL, inflation linkage remains an important component of the portfolio, which has helped support resilient performance across a range of economic environments.”

Richard Sem, Partner and European Head of Infrastructure at Pantheon Ventures and Manager of Pantheon Infrastructure (PINT), said: “Infrastructure provides protection from inflation through the nature of its underlying cashflows. Not all sub-sectors are the same, but typically the contracts, or regulation, that underpin PINT’s investments include provisions that link cashflows with inflation measures, such as CPI. This then flows through to increased current and future cashflows for our shareholders.”

What key company/project in your portfolio is performing well?

Robyn MacHugh, Investment Adviser to GCP Infrastructure Investments, said: “Our investment in A Shade Greener, a residential solar panel installer, has been a standout example of what long-term, contracted infrastructure investing can deliver. As one of the earliest institutional entries into UK rooftop solar, we provided £167 million in senior-secured loans back in 2011 to fund around 50,000 domestic installations with 184MW of capacity. 

“The underlying revenue is almost entirely Feed-in Tariff income, funded by the government and fixed for 25 years, with payments linked to CPI. And the scale and diversification of the portfolio, spread across tens of thousands of rooftops, significantly derisks the investment.”

Edward Hunt, Fund Manager of HICL Infrastructure, said: “A good example is Affinity Water, HICL’s largest investment and the UK's largest water-only company, serving more than four million customers. In the 2026 financial year, Affinity completed a record £209 million investment programme, the largest in its history, and resumed distributions to shareholders. As HICL’s largest investment, Affinity’s performance has been an important contributor to portfolio returns and demonstrates how active management, operational delivery and financial discipline can create long-term shareholder value.”

Muhammad Anwer, Chief Financial Officer for International Public Partnerships (INPP), said: “Tideway, the Thames ‘super sewer’, is one of INPP’s largest holdings at 16.1% of investment fair value as at 30 June 2026. It has diverted more than 21 million tonnes of sewage from the Thames, the equivalent of over 8,400 Olympic swimming pools (August 2026). Tideway is a first-of-its-kind project and is the clearest example of what private capital can do when the revenue model is set up properly at the outset.”

Richard Sem, Partner and European Head of Infrastructure at Pantheon Ventures and Manager of Pantheon Infrastructure (PINT), said: “Calpine is one of the largest independent power producers in the US. The company was attractive to us because we saw baseload power generation as a genuinely neglected area of the market. 

“That thesis has played out spectacularly, aided by the rampant demand for power arising from the demand created by artificial intelligence. As a result, the company was sold to Constellation Corporation earlier this year, delivering our first exit at a material gain to entry.”

Does the shortall of infrastructure funding present an opportunity?

Edward Hunt, Fund Manager of HICL Infrastructure, said: “Yes. The scale of infrastructure investment required in the UK and globally represents a significant long-term opportunity for infrastructure investors.

“Whether the need is upgrading energy networks, improving water infrastructure, enhancing transport connectivity or expanding digital infrastructure, there is a growing requirement for private capital to work alongside governments and the public sector. This can provide investors with access to opportunities that would otherwise be difficult to access.”

Steve Cook, Head of Portfolio Management at SIMCo, the investment adviser to Sequoia Economic Infrastructure Income (SEQI), said: “Addressing this shortfall – which only seems to be enlarging – is indeed a huge and ongoing opportunity for investment trusts. Opportunities can be found in renewable energy, flexible gas generation, data centres, mobile towers, fibre, student accommodation, rolling stock and many other sub-sectors. SEQI has identified and invested in more than 40 distinct sub-sectors of infrastructure across more than 250 investments over the last 11 years, in the UK and in other advanced economies. The investment trust structure provides investors with access to harder-to-reach markets, offering a diversified and global opportunity to invest in the sector.”

Richard Sem, Partner and European Head of Infrastructure at Pantheon Ventures and Manager of Pantheon Infrastructure (PINT), said: “The scale of the gap is real, and clearly the government cannot close it through borrowing, so private capital has to do a lot of the work. In the past, listed infrastructure trusts have been a valuable source of capital for a variety of infrastructure projects in the UK. While we currently have to be more selective given the reduced secondary flows into the market, we expect this to continue providing the shortfall translates into an investable pipeline.”

Robyn MacHugh, Investment Adviser to GCP Infrastructure Investments, said: “This is a genuine opportunity for infrastructure trusts. The government can't close a £250 billion-plus shortfall through public spending alone, and it has announced several schemes aimed at directing private capital to close the gap, including the proposed Wholesale CFD, a type of government subsidy, that will give non-gas generators a fixed price for output instead of merchant exposure to gas-driven wholesale prices. 

“There is also the Direct Procurement for Customers model for water and proposed partial government debt guarantees that bring third-party capital into major projects such as reservoirs and wastewater treatment, while keeping ownership with the utility. Finally, there is the new public-private partnership model for social infrastructure which extends the same logic to healthcare and housing. With the right execution, this shortfall could become a pipeline of investable assets rather than just a funding gap.”

Muhammad Anwer, Chief Financial Officer for International Public Partnerships (INPP), said: “Yes, but only where projects are structured to be investable. The capital exists – the constraint has never been appetite. We currently have around £290 million of investment commitments, a nearer-term pipeline of around £1 billion of equity opportunities at estimated double-digit returns, and access to a wider pipeline of £3 billion. The point about listed trusts is that the contracts run for decades, and a closed-end structure means assets can be held for their full economic life without being a forced seller to meet redemptions. So, the opportunity is real, provided government picks the right delivery models.”

What would benefit the infrastructure sector in the upcoming Budget?

Richard Sem, Partner and European Head of Infrastructure at Pantheon Ventures and Manager of Pantheon Infrastructure (PINT), said: “The most valuable thing government can offer the infrastructure sector is policy stability, rather than headline grabbing spending commitments. Infrastructure is a long-term investment, so private capital will only be committed if investors can underwrite assets with confidence over a long-term horizon.

“Beyond policy stability, we support measures that make it easier for UK capital, and pension funds in particular, to access infrastructure, building on the Mansion House Accord and making sure potential investors have longer pipeline visibility so they can allocate accordingly.”

Edward Hunt, Fund Manager of HICL Infrastructure, said: “The most important thing the government can provide is clarity and consistency. Infrastructure assets are financed and operated over decades, so investors need confidence that the goalposts won’t keep moving. Measures that provide a stable long-term investment framework and encourage private investment would help accelerate delivery across energy, water, transport and digital infrastructure.”

Muhammad Anwer, Chief Financial Officer for International Public Partnerships (INPP), said: “Consistency, and a long enough horizon. The UK has developed some genuinely world-class models for mobilising private capital, and INPP’s portfolio is largely built from them. Each gives a clear revenue basis and puts each risk with the party best placed to manage it. What makes them work over time is stability. When the regulatory framework and the pipeline are predictable the public sector gets its infrastructure more cheaply.”

- ENDS -

Notes to editors

1. Source: theaic.co.uk / Morningstar (to 22/09/26).