Myth 3: I already gain exposure to listed infrastructure through traditional equity managers
The typical global equity manager holds less than 2% of their portfolio in infrastructure assets, normally via one or two large well-known utility names. However, much of the alpha generated in our diversified portfolio has come from mid-cap stocks which are under-researched by global equity managers, such as toll roads, oil storage, mobile towers and water utilities.
Listed infrastructure is an emerging asset class that is currently under researched and not always well understood. This is similar to the situation we saw 15-20 years ago with listed property trusts, although we believe that the risk/return characteristics of listed infrastructure are superior to those of property, due to long-term structural growth drivers like urbanisation, globalisation of trade, mobilisation of data and security of energy supplies.
Because there is a relatively limited investable universe within Australia, it is important to view investments in listed infrastructure from a global perspective. The global listed universe is capitalised at over US$1.5 trillion, allowing investors to diversify across various infrastructure sectors and geographies and to actively manage key risks.
A good example is the airport sector. Sydney airport is one of the world’s leading airports in terms of profitability by passenger, but this is widely recognized and already fully reflected in the stock price – it trades at a 13.5x EV / EBITDA multiple. Alternatively, our fund can buy shares in Zurich Airport which is currently trading at 6.5x EV / EBITDA. We believe that Zurich represents a much better investment for our clients’ money.
Infrastructure is already a separate asset class for many pension funds, endowment funds, sovereign wealth funds, private banks and multi-managers from around the world. The early movers are typically allocating between 5% and 10% to this asset class.
We have already received strong demand from private investors searching for an alternative to traditional asset classes. They recognise the need to move out of low-yielding bonds into equities but in many cases are wary, having been burnt by volatile markets. Listed infrastructure, with its attractive combination of inflation protected income and steady capital growth, offers a way of doing this.
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