Ben Loomes, who is partner and co-head of infrastructure at 3i Investments, the investment adviser to the 3i Infrastructure fund, says the vehicle specialises in investing in core infrastructure.
He says: “It is focused primarily on what we call core economic infrastructure – that tends to be large utilities or transportation – in developed economies, but with a particular focus on Europe, where we have a track record and where we have people on the ground.”
The team behind the investment trust is made up of roughly 30 investment professionals based in London, with a small team in Paris and one person in Stockholm.
Core investments include being part of the consortium that bought water supplier Anglian Water. “We also, with a consortium, acquired Eversholt Rail, which is one of the three leading rail rolling stock companies in the UK,” says Mr Loomes. Typically, 3i Infrastructure will invest between £100m and £250m in each core deal, he explains.
The trust also invests in private finance initiative (PFI) or public-private partnership (PPP) agreements, which are much smaller. He says: “In the more recent part of our strategy, which is to invest in primary PPP, we might invest anywhere between £5m and £25m, so it’s a smaller ticket size but we tend to do more deals by number.
“What I mean by primary PPP is that is these are concession-based projects, not businesses. They can be schools, hospitals, roads – in some cases we look at renewable energy projects as well. So they’re backed by the government or local authority.
“We think they’re interesting because we have a platform here which has a very long-term track record of investing in those sorts of projects across Europe, and we can invest at the point where we can form a consortium that will undertake the design of the project and construction through to operation. It’s at those early stages of investing that we can attract higher returns than you would get if you bought the project once it was already operational.”
Mr Loomes says the investment trust is looking for a stable and attractive yield, plus capital growth over the longer term. Its total return target is 10 per cent and its annual yield target is 5.5 per cent. At the end of its financial year to March 31 2014, the portfolio had 50 per cent in utilities, 38 per cent in transportation and 12 per cent in PPP.
Before making an investment, the trust considers macroeconomic factors such as inflation and currency. When investing in a local market, local macro conditions will come into play.
The investment trust has ongoing charges of 1.48 per cent.
Turning to the investment trust’s performance, Mr Loomes says: “The European portfolio has performed very well both in the short term and in the long term. Since the vehicle was listed in 2007 through to March 31 this year, the long-term performance has been an annualised return of 15 per cent. That’s the average annual return.”
Data from FE Analytics shows that 3i Infrastructure is top quartile in the AIC IT Infrastructure sector over one, three and five years to October 23 2014, making it a consistent performer. In the five-year period, it has returned 83.26 per cent, compared to the sector average return of 54.76 per cent. Over three years it has generated 41.46 per cent, against a sector average 33.31 per cent.
Mr Loomes says that the short-term outlook is strong performance from Europe, consistent with its return target. But he cautions that he has seen lower performance from India, where 3i Infrastructure made a number of investments a few years ago.
“India is about 7 per cent of our portfolio. It’s a relatively small part, but it’s one that has not performed as well as Europe, which is the rest of the portfolio,” he notes.
Finally, he points to a “pipeline of potential investment opportunities”, with three or four PPP deals confirmed in the past six months and a “healthy pipeline” of primary PPP deals likely to come to fruition in the next six to nine months.
EXPERT VIEW
Jake Moeller, head of research, Lipper UK and Ireland
The 3i fund has a total return objective of 10 per cent, with a 5.5 per cent annual distribution yield. It’s a target it has largely met, save for 2011-12. The fund has experienced a number of staff changes, with Ben Loomes and Phil White being recent appointments after the departure of Cressida Hogg. There has also been a number of changes at board level and a change in its corporate administrator. The underperforming Indian component of the fund is gradually being realised and the introduction of a ‘high water mark’ fee potentially better aligns the interests of investors with the fund’s managers.
