Research - JUNE 2, 2017

Stars align for U.K. infrastructure investment companies

by Jody Barhanovich

From the complex mix of investment options, their influencers and long-term economic essentials, a sure pattern is emerging in the U.K. infrastructure world, according to the Global Listed Infrastructure Organization 2017 report.

The U.K. closed-end listed infrastructures investment company sector is still relatively new; however, there are currently 11 companies with equity investments in a diverse range of private infrastructure assets, from social infrastructure such as schools and hospitals, to renewable energy such as solar parks and wind farms, with a total market capitalization of just under £15 billion ($19.3 billion).

GLIO suggests that the closed-end vehicle structure is more suitable for investment in illiquid assets, as the corporate vehicle is not forced into asset sales or purchases determined by investment flows in, or out, of the vehicle as is the case with open-end funds.

Some of the top U.K. infrastructure investment companies include HICL Infrastructure, INPP and 3i Infrastructure, according to Reuters. In terms of diversification of assets, these 11 companies have stakes in almost 500 different underlying assets, across a variety of subsectors and locations. In a geographic sense, investments are located almost exclusively in the developed markets of the United Kingdom, Continental Europe, the United States, Canada and Australia.

The vast majority of the investments are long-term contracts with the public sector, or with high-quality private sector corporates, to operate a specific asset and/or generate power.

The low short-term interest rates prevalent since 2009 and the decline in bond yields have caused investors to look to higher cash-yielding sectors such as real estate and infrastructure to strengthen income for portfolios. Currently the GLIO UKI — the market capitalization weighted performance of the 11 U.K. listed infrastructure companies — offers a market-cap weighted average yield of 4.9 percent.

GLIO reports that the sheer weight of capital needed to address global infrastructure funding needs over the next 15 years will require huge support from private investors.

With regulation aimed at attracting more investment into infrastructure in order to support economic growth, GLIO believes the options for institutional and retail investors will also grow over the mid to long term, and with investors targeting increased allocations to real assets, the future looks promising for U.K. listed infrastructure investment companies.


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