Take infrastructure allocation from bond portfolio: van Eyk

Infrastructure investments are best allocated from fixed interest portfolios, rather than equities, according to the first paper from van Eyk Research’s new Strategic Research Unit.

The unit, to be chaired by senior asset consultant Peter Smith, will publish detailed papers for clients on topics such as: strategic asset allocation; portfolio construction; portfolio management and review; after-tax return optimisation; alternative asset allocation; emerging asset classes; and the implications of globalisation on portfolios. Smith has stepped down from van Eyk’s Blueprint investment committee, which has about $1.4 billion under management in a range of multi-manager options. Stephen van Eyk, the managing director, Mark Thomas, director, and Nigel Douglas, investment strategist, remain on the committee. The research papers mark an upgrade in the sophistication of advice for van Eyk clients as well as completing the firm’s ‘conflict management’ policy, with the separation of asset consulting from internal product management, according to an announcement last week. The 18-page infrastructure paper questions whether returns from infrastructure investments can be maintained in the future, but affirms that a 10-20 per cent allocation in a balanced portfolio, based on both historical and projected returns, significantly improves the overall efficiency of the portfolio. Investors get the best increase in return, with only a slight increase in volatility, if the allocation to infrastructure is taken from fixed interest. The return behaviour of infrastructure is similar to that of equities, but in times of equity bear markets the similarity breaks down.