As infrastructure matures and gains recognition as a reliable asset class, institutional investors continue to grapple with limited data available. The issue was raised at an event in London organised by the Global Listed Infrastructure Organisation (GLIO) and Imperial College Business School.
Introducing the conference, GLIO founder and chief executive Fraser Hughes, stressed the importance of both the listed and private infrastructure markets in gaining exposure.
In support was Simon Wilde, research fellow at Imperial College and managing director at Macquarie Capital, who said the stock market and infrastructure go hand in hand. Reiterating comments made last month at the IPE Real Assets & Infrastructure Investment Strategies Conference, Wilde said the canals and railways built in the 18th and 19th centuries had been backed by public fundraising.
“Investing in infrastructure can be rewarding,” he said, but difficulties begin to surface when one chooses an approach. Investors that use unlisted funds or employ a direct approach can encounter issues around accessing data. The listed route can be more straightforward, because there are good data and indices available, but it still has its limitations, he said.
While there are a variety of benchmarks available for listed markets, Wilde raised concerns about how constitutent companies were defined and grouped. He highlighted the inclusion and classification of companies such as telecommunications giant Vodafone and postal services firm Royal Mail as infrastructure firms.
Wilde had analysed the annualised returns and volatility of the listed and unlisted infrastructure markets – based on benchmarks by GLIO, Preqin and EDHEC – from 1999 to 2016. The results, he said, show that returns over the period were almost the same – ranging from 11% for listed infrastructure and 11.2% for unlisted assets to 12.5% for unlisted funds – but volatility was much varied. The standard deviation ranged from 17.1% for listed infrastructure and 11.8% for unlisted funds to 4.8% for unlisted assets.
More work was needed in measuring risk, Wilde said, adding that other issues that needed attention were with governance, measurement and liquidity.
Serkan Bahçeci, head of infrastructure research at JP Morgan Asset Management, agreed that lack of data made it difficult for investors. Bahçeci is more focused on private infrastructure but said the underlying risks did not differ between listed and unlisted markets.
But emphasised important differences between sectors and geographies. Utilities, for instance, are more recession-proof than transportation. Compared to some other assets, it is harder to make forecasts for a toll road since it could be affected by other factors, such as future developments in the vicinity.
“Transaction multiples are recovering towards pre-recession peaks,” Bahçeci said as he referred to sectors like regulated utilities, power projects and transport, which gained from growth in traffic.
Data presented by David Bentley, managing partner at Atlas Infrastructure, showed investors are well below their target infrastructure allocations and most were considering increasing them. The current level of undeployed and uncommitted allocations to infrastructure is estimated to be between $200bn and $250bn, he said.
The number and value of deals in 2017 has slipped, he said, adding that renewable energy accounted for more that half of new deals. Transport and utility assets accounted for 18% of recent deals.
Combining listed and unlisted provides different exposures and the investor the opportunity to achieve better exposure diversification, Bentley said.
During a panel discussion, Bentley suggested that the reason more companies have not gone public was probably due to listing costs. Wilde said he expected to see more mergers and acquisitions than IPOs in the coming years.