Listed infrastructure, which took a beating during the Great Recession, is experiencing a resurgence.
Some of the listed infrastructure funds found that their leverage-laden underlying portfolios were no match for the economic downturn. Some of the listed vehicles had spectacular failures and some switched to closed-end funds.
Old portfolios are being taken over by new managers — such as the listed assets held by defunct Sydney, Australia-based infrastructure manager Babcock & Brown, which were taken over by Brookfield Infrastructure Partners, New York.
Still, a number of listed infrastructure securities have survived and more are being listed. This is good news for the increasing crop of managers unveiling listed infrastructure vehicles.
Investors are starting to set aside portions of their infrastructure allocations for listed infrastructure. A portion of the new $800 million allocation for energy infrastructure by the $227.5 billion California Public Employees' Retirement System, Sacramento, would be invested in publicly listed, investor-owned companies.
Infrastructure money managers are noticing increased capital flowing into their listed infrastructure strategies. Within the past year, Deutsche Bank's RREEF Infrastructure unit has taken in $5 billion to $6 billion for listed infrastructure separate accounts and mutual funds, said Mayura Hooper, New York-based spokeswoman for Deutsche Bank.
Institutional-quality listed infrastructure is much like the real estate investment trust sector 20 years ago, said Larry Antonatos, director, global equities, in the Chicago office of Brookfield Investment Management. (Brookfield Investment and Brookfield Infrastructure are both subsidiaries of Brookfield Asset Management.)
In addition to RREEF Infrastructure and Brookfield, other managers offering listed infrastructure strategies include REIT manager Cohen & Steers Inc., Macquarie Group Ltd., Lazard Asset Management, Colonial First State Investments Ltd. and Capital Innovations LLC.
“There are few managers with relatively short track records. Our track record is three years,” Mr. Antonatos said. “Brookfield is a significant investor in infrastructure in private equity (closed funds) and listed formats; we've seen interest from clients in both formats.”
Brookfield is focusing on “toll takers.” The firm's definition includes toll roads, airports, seaports and energy infrastructure.
Investors are choosing listed infrastructure because they want liquidity and diversification, he said. Investors also get immediate allocation and exposure. “With listed infrastructure they can put their money to work immediately,” Mr. Antonatos said.
To get diversification, investors need to be in a variety of funds because infrastructure investments are so large a single fund will invest in a relatively small number of projects, he said.
The variety of listed infrastructure vehicles is growing.
Capital Innovations, Pewaukee, Wis., is offering listed infrastructure investment strategies that have a low degree of economic sensitivity, Michael Underhill, Capital Innovations' co-founder and chief investment officer. Those investments would be less affected by interest rates and inflation increases, he explained.
Mr. Underhill bristles at what he sees as an overabundance of energy infrastructure vehicles being formed.
“It now seems that everyone and his brother is an infrastructure expert with oil and gas MLPs (master limited partnerships), mutual funds and separate accounts hastily being put out as infrastructure strategies,” Mr. Underhill said. “Infrastructure investing is much broader than energy MLPs.”
Statistically, master limited partnerships represent only 10% of the investible universe of global infrastructure, he said. Of the 800 stocks in the global infrastructure universe, only 50 or 60 are master limited partnerships, he said.
For infrastructure managers, he said, the issue is not getting access to deals, but rather figuring out the exit strategy that will make money.
A growing number of listed infrastructure benchmarks have sprung up to meet investors' needs. New York-based rating agency Standard & Poor's; Macquarie, working with the FTSE; UBS; and Brookfield, working with Dow Jones Indexes, all have global infrastructure indexes.