Benefits of investing in infrastructure highlighted

News - Funds

Written by Ray Clancy

Friday, 03 September 2010 09:25

Infrastructure funds can benefit from growing worldwide demand making them an attractive long term theme for investors, experts believe.

According to Dirk Kubisch, product specialist at Swiss & Global Asset Management, industrial nations are improving existing infrastructure and emerging markets are spending billions on building roads, railways and power grids.

This puts infrastructure into a position where it is one of the key foundations of any economy. Spending has traditionally been made by the respective governments, however, in light of the rising budget deficits and the increasingly empty public purses, more and more infrastructure assets are being privatised, he points out.

In the OECD countries alone, state assets worth some $1 trillion have been sold in recent decades. The most recent example is the sale by the British government of High Speed 1, the rail railway line between London and the Folkestone entrance to the Channel Tunnel. Meanwhile, the Spanish government reportedly plans to sell part of airport operator AENA.

‘Infrastructure funds have the potential to close the gap between dwindling public finances and growing demand. For investors, the primary focus is on the asset class’ attractive characteristics, such as stable long term cash flows, the potential for growth and the moderate correlation with other asset classes. This combination provides an interesting risk/return profile,’ said Kubisch.

‘The barriers that normally come with investments in this sector, such as high minimum investment and a lack of liquidity, can be overcome through investing in listed infrastructure firms,’ he explained.

The recent takeovers in the listed infrastructure sector demonstrate the intrinsic value of infrastructure companies, he believes. ‘For example, Intoll Group saw its share price rise sharply in July following a takeover bid from the Investment Board of a Canadian pension fund, offering a 40% premium. There have also been rumours regarding a takeover of Spanish toll road operator Abertis. Two of the company’s shareholders are seeking to stage a buyout together with a private equity firm, also at a clear premium,’ he said.

‘When investing in infrastructure we recommend that investors seek a balance between demand oriented infrastructure, for example ports or toll roads, and regulated infrastructure, for example utility companies in the water sector, or pipelines,’ he added