Many investors accept the potential advantages of an asset allocation to infrastructure within a portfolio. The challenge has been finding ways to access to the universe of infrastructure assets. In the past access has been very limited with most assets under Government ownership. Public private partnerships and privatizations have increased the number of investment opportunities to investors, whilst creating a choice of asset holding structures (direct investment verses public listed equity).
RARE has published a research piece (attached) on listed vs. unlisted infrastructure investment. This paper covers:
- The practical differences between holding infrastructure assets as direct investments verses holding stakes in public listed entities
- Potential advantages of a strategy that actively utilizes exposure to both listed and direct infrastructure
The key conclusions of the analysis are as follows:
- Over the long term, the benefits of owning an asset in a portfolio are determined by the underlying returns and correlations of that asset, rather than whether they are held in a direct or listed form
- RARE believes that there is good evidence that the measured volatility and market correlation differences between similar listed and unlisted assets are largely as a result of choice of measurement interval, i.e. as the measurement period increases, the returns, correlation and volatility converge and the two types of asset can be considered as substitutes
- In contrast, over the short and medium term, there are potential additional returns to be made from a combination of listed and direct infrastructure as a result of greater diversification, higher liquidity and the ability to arbitrage supply and demand factors
- RARE believes that, from the perspective of adding infrastructure exposure to an institutional portfolio, listed and unlisted infrastructure should be seen as long term substitutes but medium term complements
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