The journey of global listed infrastructure from ‘nebulous’ to ‘new asset class’ has been a remarkably quick one in Australia.
As Nick Langley, investment director of RARE Infrastructure recalled recently, as late as 2005 there was no such thing as a specialist manager of global listed infrastructure securities here, or indeed anywhere. Several global infrastructure equities funds have become available to local investors in the intervening few years. The good news is that most of them are actually managed from here, and most have secured significant inflows from Australia, about $5 billion in total to date, and plenty from clients overseas too.
It’s no exaggeration to say that Australia, despite having a weighting in listed global infrastructure not much higher than its share of the MSCI World, is recognised as a global leader in the asset class.
In a funny way we have Jeff Kennett to thank. In the early 1990s, the then-Premier sold off nearly $30 billion in Victorian gas and electricity assets, helping to kick off a wave of privatisations around the world, and providing a foothold for the likes of Macquarie, AMP and Hastings as infrastructure managers.
They were helped by the long-running love affair between property and Australian investors, who quickly latched on to infrastructure as a yield alternative to bricks-and-mortar. This headstart has helped Australians be among the biggest names in infrastructure today. Examples include Felicity Gates, an infrastructure analyst at Deutsche Asset Management in the early days who is now Citi’s co-head of infrastructure in New York, and Paul Moy, a UBS investment banker who now runs the Swiss group’s global infrastructure investment business out of London.
But the quality of Australia’s people does not mean that Australian infrastructure stocks themselves are surging in popularity. RARE Infrastructure, for example, is downweighting its local exposure on concerns that many of the stocks here look more like leveraged investment banking plays than the ‘boring’, regulated long-term generators of cashflow that most investors want.
Likewise for Stefano Solferini, whose new Sydney-based global listed infrastructure shop, Nucleus, has just become the inaugural funds management venture for the Susquehanna Group, a private pool of capital owned by eight very rich Pennsylvanians.
Solferini says stocks using the ‘Macquarie’ model bear little resemblance to most privatised infrastructure companies around the world. He adds that analysts outside Australia are less familiar with infrastructure and have been slower to account for their monopolistic, demographically-assured long-term growth. “In many markets, power generators and so forth are still being modelled on a one year P/E ratio,” Solferini says by way of example.
I wouldn’t mind betting that listed infrastructure will join listed property, resources and wrap accounts as one of the great export success stories of the Australian financial services industry.