Autumn Statement: “Never had the word ‘Infrastructure’ been used so frequently”

Infrastructure, it seems, has never been more high profile.  Chancellor Philip Hammond announced a spending spree on UK infrastructure in the Autumn Statement, whilst on the other side of the Atlantic, one of the focuses of Donald Trump’s election campaign was a $1 trillion infrastructure spending, with much of this also relying on private financing.

The investment company industry has a thriving Sector Specialist: Infrastructure sector, with foundations both in the UK and internationally.  The closed ended structure provides 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. These contracts are for the long-term (20-50 years) and aim to deliver a stable income over the period of the contract, often linked to inflation.

HICL Infrastructure and International Public Partnerships were trailblazers of the sector, both launched in 2006.  By the end of 2006, the sector had total assets of £550m, compared to £11bn today, making infrastructure the industrys growth story of the decade, and the fourth largest investment company sector.   The AIC has collated views from the Sector Specialist: Infrastructure Sector from both a UK and US perspective.

 Giles Frost, Chief Executive Officer, Amber Infrastructure Group, managers of International Public Partnerships, said: “Never has the word infrastructure been used so frequently as the Chancellor decides that infrastructure spending will be the tool to boost productivity. This is nothing new, but what has changed is the shift away from procuring only big-ticket public infrastructure projects to adopting a more consultative and entrepreneurial approach to plugging the UK’s infrastructure deficit.

“Regions are now set to have increasing spending power to procure bespoke solutions for road, rail and housing projects. This fits with what looks like a social inclusion agenda by central government, seen most clearly in an effort to drive through improvements in broadband connectivity. Decentralising infrastructure spending will allow for more flexibility for private investors to take solutions to local authorities and not simply rely on central government to provide a list of ready-made projects in which to invest.”

Tony Roper, Director, InfraRed Capital Partners, Investment Adviser to HICL Infrastructure, said: “The government is proposing a new pipeline of projects that are suitable for delivery through the PF2 Public Private Partnership scheme. A list of projects to make up the initial pipeline, covering both economic and social infrastructure, will be set out in early 2017. As details become clearer, there might also be potential opportunities in the social housing sector.”

 

On the US, Tony Roper added: “If the President-elect’s policies result in the successful roll-out of new projects requiring private sector capital, particularly in areas like transportation, then London-listed investment companies with a presence in the US will be in a good position to participate in them. Investors are attracted by the segment’s stable and differentiated performance with low volatility and strong income generation plus inflation linkage, evidenced historically over 10 years.”

Duncan Ball, Co-CEO of BBGI, managers of BBGI SICAV S.A. said: “President-elect Donald Trump’s proposal for $1 trillion-worth of new infrastructure construction relies heavily on private financing, which bodes well for companies like BBGI that work with governments to deliver and operate important infrastructure. BBGI has 39 separate public-private partnership infrastructure investments and is optimistic about improved deal flow coming from the U.S.A.

“During the election campaign, Mr. Trump made a $1 trillion infrastructure investment over 10 years one of his first priorities as president. He committed to ‘rebuild our highways, bridges, tunnels, airports, schools, hospitals.’”

A critical element of Trump’s plan relies on harnessing the private sector to help finance and build these infrastructure improvements. Duncan Ball, Co-CEO of BBGI, continued: “We envisage an increase in the popularity of the public-private partnership model next year.  BBGI is an investor in East End Crossing Project, a highway public-private partnership project consisting of a new 1,700 foot tunnel, associated road works and a 2,500 foot cable stay bridge across the Ohio River between Kentucky and Indiana, home state of Vice President-elect Mike Pence. We believe this highly successful highway public-private partnership project, which will open to traffic in December 2016, could serve as a role model for more projects in the USA.”

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: “Infrastructure has been the fastest growing investment company sector of the last decade, with the closed ended structure the ideal home for investing in long-term infrastructure projects.  This is because managers have a stable pot of money and are crucially not affected by investor inflows and outflows. Continuing this trend has been the emergence of the Renewable Energy Infrastructure sector after a spate of launches in 2013 and 2014.

“The Sector Specialist: Infrastructure sector is currently trading on around a 14% premium, reflecting the strong demand for alternative income.  Of course investors need to take a long-term approach to investing and premiums can turn to discounts if sentiment changes.”

% share price total return to 31 October 2016

Duration (years)   1yrs 5yrs 10yrs
Overall Weighted Average investment company ex VCTs   15.45 78.66 108.91
Sector Specialist: Infrastructure launch date 16.84 84.16  
BBGI SICAV S.A. 21/12/2011 18.81    
GCP Infrastructure Investments 22/07/2010 12.78 77.35  
HICL Infrastructure 29/03/2006 15.49 89.51 172.38
International Public Partnerships 09/11/2006 26.24 73.36  
John Laing Infrastructure 29/11/2010 12.48 55.77  
Sequoia Economic Infrastructure Income 03/03/2015 14.02    
         
Sector Specialist: Infrastructure – Renewable Energy 10.46    
Bluefield Solar Income Fund 12/07/2013 7.46    
Greencoat UK Wind 27/03/2013 8.57    
John Laing Environmental Assets Group 31/03/2014 5.16    
NextEnergy Solar 25/04/2014 13.52    
Renewables Infrastructure Group 29/07/2013 13.93  

 

(Source:AIC)