Infrastructure – Feature
Sometimes it can take a crisis to tackle existing problems. The Covid pandemic has shone a new light on a plethora of social and environmental issues. From access to healthcare, to biodi- versity and climate change, the challenges appear more press- ing than ever. At the same time, the forced shutdown of the economy also brought widespread economic damages. While policymakers have reluctantly steered the country into the sec- ond phase of a national lockdown, the demand to build back better resonates across the globe. Joe Biden used the slogan in the US presidential election, pledging a $2trn (£1.5trn) infrastructure plan focused on the transition to renewable energy production and expanding transport networks. On this side of the pond, Boris Johnson made similar promises, announcing the launch of a “new deal” for infrastructure.
Infrastructure currently only holds a modest 6% share of the average institutional portfolio. But with yields at a record low, more than a quarter of institutional investors plan to increase their exposure to the asset class, according to Mercer. The need for cash is there. Prior to the pandemic in 2016, the
“In the portfolio itself, we have a diversified base of assets from renewable energy to regulated utilities, social infrastructure and transport. We have been fortunate in that we haven’t had a great deal of exposure to the hardest hit sectors within infra- structure, such as airports and other transport demand-based assets, so our portfolio has held up pretty well. Part of that is due to the hard work of the management teams but we have al- so been fortunate in our asset selection,” Ord says. Mike Hardwick, investment director for Infrastructure and property at LGPS Central, says that the impact of the pandem- ic has been mixed, but essential sectors, such as power and utilities, have performed relatively well. “Even where revenues were initially heavily impacted by an enforced lockdown, it was interesting to note that governmental support was forthcom- ing due to the essential nature of these assets, and their role in keeping the economy functioning. “This has lessened the impact on valuations and as a whole the industry has been pretty robust, which is supportive to its long- term attractiveness to investors,” he adds. Hardwick, whose team at LGPS Central, is due to launch an in-
INFRASTRUCTURE: BUILD BACK BETTER
government estimated that around £483bn was needed to plug the infrastructure funding gap. That was before the pledge to make the UK carbon neutral by 2050 and the economy crashing by more than a fifth in a single month. So, what role could institutional investors play in the bid to build back better?
Covid impact
Institutional commitment to illiquid assets must have been scary when the outlook for airports and trainlines suddenly plunged. But the initial panic was most tangible in the liquid side of the market. Inflows into listed infrastructure dropped by 70% between the final quarter of 2019 and the three months to July, according to Prequin. For those investing directly in infrastructure on a buy and hold basis, the effects have been less dramatic, says Jonathan Ord, investment director at GLIL, a local authority infrastructure investment fund. He stresses that the immediate impact of the pandemic on infrastructure has not been as dramatic as in other asset classes.
frastructure fund by the end of this year, remains optimistic on the outlook for infrastructure as an asset class but acknowledges that a certain amount of re-thinking will be required. “As with other asset classes, it will be important to differentiate between short-term impacts and longer-term changes brought about by Covid-19, but some degree of re-pricing is likely when those impacts are more certain. For example, we can ask whether air- ports will ever return to the levels of growth seen in recent years even if a vaccine or level of immunity is achieved whereby Covid-19 is no longer a consideration. The answer to that ques- tion would definitely err towards a ‘no’. However, this isn’t a complete ‘no’, but pricing will need to reflect a different growth profile, different revenue streams and different investor appe- tite,” he predicts. Paula Burgess, partner and chief executive at Pensions Infra- structure Platform (PiP), now part of Foresight, also stresses that the long-term nature of PiP’s investments has meant that the portfolio was relatively unaffected. “This is not to say that infrastructure as an asset class will emerge totally unscathed,” she says.
Issue 98 | November 2020 | portfolio institutional | 47
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52
