What sets infrastructure funds apart?

“The main global listed infrastructure asset types are toll roads, ports and airports, rail companies, oil and gas storage and transportation companies, communication towers and satellites, and water and electricity utilities.”

There are also funds that invest in projects or infrastructure assets, adds Darius McDermott, managing director of Chelsea Financial Services.

Traditionally, most infrastructure funds obtained exposure to assets by using unlisted funds, which invest directly in the underlying assets.

“Listed infrastructure funds provide an alternative structure for gaining exposure to the asset class,” explains Mr Meany.

“The nature of the underlying investments means that listed infrastructure funds have better liquidity and are able to achieve greater levels of diversification than a direct infrastructure fund.”

Listed infrastructure assets have a number of unique investment characteristics which appeal to a broad range of investors.

Mr McDermott says what differentiates infrastructure assets from other types of asset are high barriers to entry, inelastic demand for services that provides pricing power, low operating costs and high target operating margins, as well as long durations such that concessions of 20 or more years and 99-year leases are not uncommon.

Mr Meany points out further strengths of this sector are a sustainable growth profile which is relatively immune to economic cycles, with the addition of legislative backing and natural monopolies in some situations, such as electricity and gas distribution networks, toll road concessions and city airports with restricted flight paths.

“Infrastructure assets tend to have the ability to consistently increase the price of their services over time,” he says.

“This can be due to several factors including tolls linked to inflation, real regulated returns and assets with high barriers to entry which make competition difficult and limit customer choice.

“These assets also have an ability to generate cash flows which are highly predictable. This predictability is underpinned by infrastructure’s essential service nature, regulated returns, long-term contracts, limited cyclicality and lack of commodity price exposure.”

Neil Shillito, director at SG Wealth Management, adds that in general they don’t differ much from funds investing in other asset classes: “what they are attempting to do is concentrate all their holdings in sectors likely to benefit directly by infrastructure spend”.