The rise of infrastructure

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Guide to investing in alternatives

"This is exposure to a predictable and relatively secure stream of cashflows over the long-term, generally backed by public sector counterparties or regulated market positions, and often with a high degree of inflation linking. 

“That sort of cashflow profile can be very appealing to investors.”

Building blocks

There are several ways in which investors can get exposure to infrastructure. A conversation with a financial adviser should be able to determine which type of exposure is best for their portfolio, as well as their overall financial planning needs.

Paddy Dear, co-founder of closed-ended investment company Tetragon, says: “Investors can get exposure through several means: pure play infrastructure funds, either publicly quoted funds or private funds, or through funds that have a diversified exposure that includes infrastructure assets.”

He also suggests rather than trying to predict which areas within the UK or which regions beyond the UK will be infrastructure hotspots, it is more appropriate to have “a broad approach to infrastructure that is always evolving and covers the gamut of the asset class, from health and education to student housing, renewables, highways and street lighting”.

Darren Cooke, chartered financial planner at Red Circle Financial Planning, has a similar view. 

He reveals he holds the First State Global Infrastructure fund in his portfolios, preferring to “stick to that rather than make any specific call”.

Investment trusts are an increasingly popular way to invest in infrastructure, with the Association of Investment Companies (AIC) reporting the Sector Specialist: Infrastructure sector raised £1.7bn in secondary issues in the first six months of 2017 to the end of June.

Annabel Brodie-Smith, communications director at the AIC, points out with an average yield of 4.8 per cent, it is not hard to see why investors are attracted.

“Infrastructure has been an impressive growth story this decade in the investment company sector, providing investors with the purest way of accessing infrastructure projects by investing in contracts to develop and run long-term capital expenditure projects in public sectors such as transport, healthcare and schools,” she explains.

“There are seven investment companies that make up the Sector Specialist: Infrastructure sector and at the end of May total assets are almost £9.5bn, making it the fourth largest investment company sector,” Ms Brodie-Smith adds.

Investing in infrastructure is not all about accessing the spending promised by governments or the high profile construction projects though.

More often than not, investors will be getting exposure to the less well reported but vitally important infrastructure developments such as street lighting, and the construction of schools and hospitals.

Mr Edwardson explains: “The infrastructure funds in which we invest typically own operational assets on long term, often government backed contracts.