There was a place for transportation assets in a diversified infrastructure portfolio, said the head of infrastructure at JP Morgan Asset Management, even though they were typically more sensitive to turns in the economic cycle than regulated utilities.
Visiting Australia last week, Mark Weisdorf, who manages US$3.5 billion in OECD infratructure assets, said the regulated utilities and transportation sectors were providing compelling opportunities in the global infrastructure market.
While regulated utilities provided more reliable cash flows, assets in the transportation sector were recovering strongly from mark-downs incurred during the global financial crisis.
“One of the issues that investors have wrestled with is the greater economic sensitivity of transportation assets relative to regulated utilities assets,” Weisdorf explained.
“We’re through the worst of it now, and the use of transportation assets has been recovering from 2009 and 2010. So seaport volumes, passenger numbers at airports, rail volumes and even toll road utilisation has been rebounding,” he said.
Although the use of transportation assets had not reached pre-crisi levels, Weisdorf believed that by the end of the year this would be achieved.
Asset prices, however, have not rebounded to pre-GFC peaks, which was a good thing, he noted, as prices were too high in the late stages of the last bull market.
“We believe there are interesting opportunities in the transportation sector, because now those assets are available at prices that will generate the appropriate higher returns, the appropriate risk-adjusted returns [that] we think they should generate given that they do exhibit a greater economic sensitivity.”
In Australia, volumes passing through the Port of Brisbane and carried by QR National were starting to pick up again, which was consistent with what Weisdorf saw in other parts of the world.
For regulated utilities, signs of inflation and rising interest rates could potentially mean the expected rates of return from these assets would improve.
“We think over the next decade or two, allowed rates of return on regulated utilities will increase and we think it will be an attractive sector to invest in,” he said.