Infrastructure: three things I learned this week

Ryan Lightfoot-Aminoff 15/11/2018 in Specialist investing

Infrastructure is all around us; roads, railways, airports, water, gas, electricity, oil and gas pipelines, telecom towers and satellites. It is essential to our everyday lives and, therefore, economic activity.

So it should also be attractive to investors. But it remains a relatively unexplored area for most. It’s not sexy, it’s not exciting and it’s not really talked about that often – except when it goes wrong. Train strikes, gridlocked motorways, blackouts… when infrastructure let’s us down, it becomes a dinner conversation.

But in reality the sector has a lot more to it than first meets the eye. An infrastructure asset could be anything from a small, single doctor’s surgery to hospitals, libraries and schools; prisons; social housing; renewable energy; and complex projects such as the London Crossrail.

And we’re always learning more about what is actually a fascinating sector.
Peter Meany, manager of First State Global Listed Infrastructure came in to our offices last week for a catch up.

Here are three things I learned from just that one chat:

1. While infrastructure funds are by no means trying to give themselves an ‘ethical’ badge, environmental, social and governance issues are actually quite important in the sector.

For example, if companies look after their customers and treat them fairly, they are likely to face less political and regulatory interference.

Environmental issues are also rising in relevance across the industry: oil and gas are in scarce supply and an obvious issue in terms of climate change and pollution. While renewable energy infrastructure is an option, it needs to be assessed carefully, as it can be at the mercy of government policies and subsidies.

From a social point of view there is also a growing need for hospitals, prisons and care homes and, when it comes to governance, workforce safety and security are also very relevant.

Peter likes to engage with companies rather than simply seeking out an ethical option. “ We map the carbon intensity of the companies we could invest in, to see environmental impact today,” he said. “If we can encourage a utility company to use more renewable energy and reduce its carbon footprint, I think we are having more of an impact than buying a ‘clean’ company to start with. We also monitor such things as trends in oil spills, train derailments, safety measures, etc.”

2. Most ports in developed markets are state-owned. Who knew?! In Europe, most ports are owned by the government – the exception being Hamburg, which is very small and some Greek ports which are owned by the Chinese.

It is possible to invest in ports in likes of Brazil, Malaysia, Dubai or India, but the latter two countries also pose issues as the governance of the ports is not up to scratch in many cases. There is also the added issue of the trade war between China and the US, which is taking its toll (expose the pun) on these businesses.

3. Data storage – although integral to our lives today – isn’t quite classified as ‘infrastructure’ just yet. First State’s telecommunications research analyst is arguing the case today, but Peter is pushing back as there are no barriers to entry. In his view it is more of a ‘property’ investment right now. All you need is a building to house the company, and competition is fierce.

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