Time is right for unlisted infrastructure

Current market volatility and the threat of inflation combined with increasing demand for private sector involvement in infrastructure development mean now is a good time to invest in unlisted infrastructure, according to Mercer.

Private infrastructure offers protection from volatility due to its decreased correlation with equity markets, and its inflation-linked returns also protect from the threat of inflation, both of which are appealing in the current global market conditions, according to Mercer’s chief investment officer and leader of its portfolio construction team in Asia Pacific, Russell Clarke (pictured).

Although Australia is an exception, the governments of many developed markets are highly indebted and will increasingly be looking to the private sector to become more involved in the provision of public infrastructure, Clarke said.

In the coming years, Australians will get access to a variety of interesting assets that they may not have got exposure to historically, allowing investors to step up in bridging the capital shortage, he said.

And although the Federal Government is in good position, many state governments may be making more infrastructure assets available as they are keen to maintain their credit ratings, he said.

Mercer has significantly boosted its exposure to infrastructure assets over the past six months, acquiring stakes in German gas transmission utility Thyssengas and Czech transmission towers business Ceske Radiokomunikace through underlying manager Macquarie Specialised Asset Management.

Mercer also seeded Westbourne Capital in December to provide exposure to a range of investments, such as the port assets of the Newcastle Coal Infrastructure Group, Mercer stated.

“The winners in today’s infrastructure market will be investors who pay sensible prices based on realistic assumptions for future growth and inflation, at appropriate discount rates,” Clarke said.

“Those who can strike the optimal capital structure for an asset and have a superior ability to manage it effectively once acquired will be successful investors,” he said.