New analysis backs infrastructure allocations
New analysis from JP Morgan Asset Management has backed the value of core infrastructure in asset allocation, particularly for institutional investors.
In an analysis issued this week, JP Morgan AM's head of infrastructure research, Serkan Bahceci together with Stephen Leh have pointed to the fact that institutional investors have been allocating a growing share of their portfolios to infrastructure assets — including regulated utilities, transportation and contracted power.
They said the focus had been on core investment strategies which could produce stable, forecastable cash flows through the use of prudent leverage and some combination of transparent and consistent regulatory environments, long-term contracts with credible counterparties, and mature demand profiles.
The analysis said a key benefit of core infrastructure investments was their ability to provide relatively high total returns with low correlations to traditional asset classes, such as equities, fixed income and real estate.
"Consequently, an allocation to core infrastructure may reduce the volatility of an institutional portfolio and can potentially limit the maximum drawdown during times of market stress," it said.
The analysis said that, going forward, the authors expected the equity risk premium for core infrastructure investments to fall, regardless of changes in the cost of debt.
"Whereas equities are vulnerable to a slump in economic growth, and fixed income is vulnerable to rising rates, infrastructure has the ability to perform well in a wide range of economic environments," they said.
Recommended for you
Some 42 per cent of CEOs say they are actively reinventing their business to stay relevant in the next decade, with consumer services the most common choice for asset and wealth managers.
Former Ophir Asset Management chief executive, George Chirakis, has joined private equity manager Scarcity Partners, while the asset manager has appointed a replacement from Macquarie.
Australian Unity has appointed a fund manager for its Healthcare Property Trust, joining from Centuria Healthcare, as it restructures the product with a series of senior appointments.
Financial advisers nervous about the liquidity of private markets funds for their retail clients are the target of fund managers launching semi-liquid products which offer greater flexibility and redemptions.
