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Building the case for infrastructure investment companies

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UK Infrastructure investment received a boost last week, following the government’s confirmation of its commitment to develop the UK’s road and rail network.

There are currently seven investment companies investing exclusively in infrastructure projects and their ability to pay relatively high dividends has made the sector increasingly attractive to today’s income hungry investors. As a result of this demand, the sector is trading on a premium of 4.1% to net asset value (as of 26 March).
 
The Association of Investment Companies (AIC) has surveyed managers of infrastructure companies for their views on the prospects for the sector, managing increasing demand from investors and where they are currently seeing opportunities to invest.
 
Giles Frost, Director, International Public Partnerships (INPP) and Amber Infrastructure, says: “Overall, the outlook for the UK and wider infrastructure market continues to be positive and investment across the sector remains a key driver of economic growth. In the UK, the government has outlined its commitment to infrastructure investment, through the National Infrastructure Plan, and the significant role that the private sector will have in funding and developing the GBP200bn programme, will provide funds like INPP with a broad range of attractive investment opportunities going forward.”
 
Tony Roper, Director of InfraRed Capital Partners and Investment Adviser to HICL Infrastructure says: “Infrastructure has become increasingly popular as an asset class. Both retail and institutional Investors have been drawn by its potential for generating attractive and predictable returns even in volatile equity markets. We continue to see a good pipeline for further investment opportunities in the secondary market both in the UK and selected overseas markets.”
 
David Marshall, Manager, John Laing Infrastructure Fund (JLIF) says: “The sector’s low-risk, predictable model continues to be popular with both retail and institutional shareholders who are provided with an attractive dividend yield. Over the course of the last year, JLIF has successfully raised in excess of GBP150m from new and existing shareholders – placing us firmly in the FTSE250 where our shares continue to trade at a premium to Net Asset Value.”
 
Giles Frost, Director, International Public Partnerships and Amber Infrastructure, says: “The discussion HM Treasury is holding with pension funds about investing in UK infrastructure underlines the increased investor appreciation for the asset class. We are witnessing a high demand from an increasingly diverse investor base, both geographically and by investor type. Retail, institutional and public and private pension funds continue to be attracted by the risk reward profile and core characteristics of the asset class which are defined by: long-term, predictable ‘inflation-linked’ income, low cyclicality, capital growth, low correlation to equities and other investment strategies and strong government commitment to the sector.”
 
Tony Roper, Director of InfraRed Capital Partners and Investment Adviser to HICL Infrastructure, says: “HICL has made a number of acquisitions in the past twelve months to complement our existing portfolio. Our principal focus has been on managing long contracts to run “social” infrastructure projects such as schools, hospitals, and other government owned buildings, which has proved attractive for investors. As a result of the recent portfolio acquisitions and the healthy pipeline of new opportunities, we recently announced our intention to raise further equity by way of C shares to repay our debt facility and fund any new investments. We are pleased to report that the offer was significantly oversubscribed and the target size for the issue of GBP180m has been substantially exceeded.”
 
Annabel Brodie-Smith, Communications Director, AIC, says: “For investors looking for a steady income source, infrastructure investment companies may be worth a look. The closed-ended structure is well suited to this type of investment as it allows managers to take a long-term view. With yields averaging 5% it is perhaps not surprising to see infrastructure investment companies in vogue, but as ever it’s important to do your homework and look beyond the dividend.”
 

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