PI Partnership – MFS Investment Management artnership
THE LIQUID, LISTED ROUTE INTO INFRASTRUCTURE
Florence Taj is an equity portfolio manager at MFS Investment Management
Who could have guessed that pensions could grab so many headlines during this unprecedented political turmoil? Thank- fully, the liability-driven investing (LDI) crisis was short-lived and proved to be more about the liquidity profile of schemes rather than their solvency. We expect scheme trustees and their advisers, with that lesson in mind, to focus more on liquidity needs in portfolios.
The rise in gilt yields has helped funding levels, but there is still a need to generate returns and hedge against inflation. Investing in infrastructure assets can help meet these needs. Public and private markets offer routes to gain exposure, with a lot of money chasing similar opportunities. We believe listed infrastructure can complement existing pri- vate allocations by providing institutional investors with a liq- uid and more diversified exposure to infrastructure assets with lower fees. Here are four reasons for UK pension schemes to consider infrastructure exposure via public, listed equity:
1) Huge opportunity set With a universe of almost $3trn (£2.6trn), global listed infra- structure provides plenty of opportunities to deploy capital, rather than investors paying fees to keep their powder dry due to a scarcity of attractive private opportunities. Given its size, the listed route can also deliver a less concentrated portfolio with greater geographic and company diversification. In our view, listed infrastructure provides access to strategically important assets many investors would own if they were avail- able privately.
2) Structural growth opportunity
There is a global need to invest in infrastructure to build new assets as well as replace or repair existing ones, thus providing a global tailwind for listed assets. Additionally, listed exposure is a relatively straightforward and cost-effective way to access the vast opportunity set. We believe listed should not be viewed as a ‘bond proxy’ since the universe has substantial long-term growth and investment opportunities. For example, the United Kingdom is not the only region investing in infrastructure. The European Union has committed more than €1trn (£873trn) to the European Green Deal while the United States passed a $740bn (£649bn) Inflation Reduction Act.
28 December – January 2023 portfolio institutional roundtable: Infrastructure
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