The global appetite for infrastructure assets has picked up considerably in recent years, according to Justin Lannen, portfolio manager with Australian boutique firm Maple-Brown Abbott (MBA).
Lannen, who runs the MBA global listed infrastructure team, said the asset class has attracted a broad range of investors seeking stable returns over long time-frames – with the bonus feature of inflation protection.
However, he said the flood of institutional money into unlisted infrastructure assets – particularly driven by large sovereign wealth and pension funds – has created opportunities in the listed arena.
“I focus a lot on the price paid for the assets – that’s a big determinant of infrastructure returns,” he said. “And with so much money in unlisted assets, prices are higher than listed infrastructure.”
In New Zealand this week as part of Heathcote Investment Partners ‘Meet the Managers’ roadshow, Lannen said while over the longer time periods returns on listed and unlisted infrastructure should converge, the current price discrepancy has opened up some “interesting long-term investment opportunities”.
“You’re able to buy similar assets more cheaply in listed infrastructure,” he said. “And investors get more diversity with listed infrastructure – we have 25-35 companies in our portfolio at any time – while direct infrastructure investors might only get exposure to one or two assets.”
Lannen said investors have only really been considering listed infrastructure as a separate asset class since the early 2000s, defining its features as “between international equities and property”.
But he said what constitutes infrastructure assets can be open to interpretation, with some investors adopting a broad approach to include associated industries and suppliers as well as the main assets.
“We have developed a tight definition of ‘core’ infrastructure,” Lannen said. “We only invest in three types of infrastructure assets: about a quarter of our funds are invested in regulatory infrastructure – water, gas, electricity and so on; another quarter is in concessional infrastructure – such as toll roads; and, half is invested in contract infrastructure, which includes assets like pipelines and cell-phone towers.”
He said the investable universe for the MBA infrastructure fund equates to about 110 stocks worldwide. As at August the fund, which has hedged and unhedged versions, was invested in 31 stocks, of which about 40 per cent were based in the US and over 10 per cent in Australia. The remaining investments were mainly in European stocks with some exposure to South America, Canada and Japan.
Lannen said the fund currently has no NZ stocks in its portfolio.
“We looked at Auckland Airport – we think it’s too expensive right now,” he said.
Since inception (in 2013) the MBA infrastructure fund has returned 25.6 per cent in Australian dollar terms. Like most assets, however, global infrastructure experienced a tough August, with the fund slipping 1.7 per cent over the month compared to a 0.8 per cent return for its benchmark.
“Our ‘reference index’ is the FTSE Global Core Infrastructure 50/50 index,” Lannen said. “This is the infrastructure index that best represents our ‘core infrastructure’ philosophy. Over the five years to 31 March 2015, the correlation versus MSCI World was 0.68 and the beta versus MSCI World was 0.46.”
The fund has a target return benchmark of 5.5 per cent over the OECD inflation rate.
Lannen, along with three colleagues at his former employer Macquarie, decamped to MBA in November 2012 to launch the global infrastructure fund.
With more than A$10 billion under management Maple-Brown Abbott is well-known as an Australian shares manager, establishing an enviable reputation in its home territory – particularly in the institutional investment world – after launching in 1984.
Lannen spent a couple of years based in Wellington with Colonial First State but this week’s tour is MBA’s first official foray into the NZ market with its infrastructure fund.
The Meet the Managers tour hits Christchurch on Wednesday and Wellington on Thursday before concluding in Auckland the following day.
