Listed Infrastructure is Fake. Long Live Listed Infrastructure

How does a retail investor gain liquid exposure to private, long-dated and cash generative infrastructure projects worth billions of pounds?

Historically the answer was that they couldn’t; the market was closed to all but deep pocketed institutions with long-dated capital. Over the past 15 years, ‘listed infrastructure’ has been increasingly accessible to retail investors, bringing with it promises of access to all the attractions of the asset class but with added benefits in the form of liquidity and low correlation to traditional equities. With this, investors could finally experience low volatility and solid risk-adjusted rates of return. Popularity for the sector quickly gained traction, and with over $57bn invested so far, it’s not set to slow down.

However, listed infrastructure has been met with criticism by some, with the spotlight being shone on investments that may in reality be offering limited differentiation from standard equities. These have been labelled by some as “fake infrastructure”.

Fake infrastructure can be defined as assets or companies analogous to the infrastructure sector, providing goods and services for example, but that may not provide investors with the fundamental characteristics of the underlying project-level cash flows. Does a listed utility company, or a provider of operational and maintenance services to transport infrastructure really count as ‘infrastructure’?

Many argue that they do not and for these reasons, the asset class is under attack. EDHEC Business School went so far as to label the sector as ‘dangerous’.  

Critics claim, and we’d agree, that some listed infrastructure offerings have under-delivered on their promises, often having been incorrectly badged as infrastructure in the first place. In reality, many of the companies targeted with infrastructure allocations offer similar risk-reward characteristics to traditional equities. Carillion is a recent good example of this, having collapsed over the summer and burned the fingers of many infrastructure funds.

Other listed infrastructure vehicles, including our soon to be launched FP Foresight UK Infrastructure Income Fund, provide genuine exposure to a diverse mix of cash generative infrastructure projects. In particular, we believe that UK listed investment companies focused on the sector can provide investors with liquid access to real infrastructure. These companies, of which there are over 20 across infrastructure, renewables and health, have direct exposure to a wide range of highly attractive private infrastructure projects which have the promise to deliver steady, risk-adjusted returns.

UK listed investment companies have direct exposure to projects including PFI hospitals, transport infrastructure, doctors’ surgeries, solar plants, wind farms and rolling stock. Many of these are relatively well-known names such as HICL and John Laing Infrastructure, but the sector is growing quickly with new listings regularly coming to market. Typical characteristics of the underlying assets in these investment companies include multi-decade contracts, inflation protection, public sector counterparties and availability-based cash flows.

There is listed infrastructure, and then there is listed “fake infrastructure”. With that knowledge, we caution investors; be clear on what you are buying and make sure you have clear access to the stable underlying cash flows that make infrastructure so attractive. The resulting stability and predictability of financial performance in these core assets can lead to attractive yield and capital preservation potential from your investment.