Interview with Head of Global Listed Infrastructure Benjamin Morton highlighting our view on infrastructure assets that we believe are poised to outperform and options for strategizing within the asset class.
Recently, Chase McWhorter, Institutional Real Estate, Inc.’s managing director, Institutional Investing in Infrastructure, spoke with Cohen & Steers’ Benjamin Morton, executive vice president and portfolio manager for the firm’s infrastructure portfolios. The following is an excerpt of that conversation.
How should investors think about a listed-infrastructure allocation based on where we are in the economic cycle?
To answer that question, one should take a step back and think about the defining characteristics of the listed-infrastructure asset class. We invest in companies that own and operate infrastructure assets — businesses and assets that collect fees for usage, that tend to be regulated or concession based, or that tend to be commercially based, but with long-term contracts. These characteristics support the hallmark feature of the asset class — predictability of cash flows. In addition, assets tend to be monopolistic, or operate as duopolies or oligopolies. Infrastructure businesses tend to have high barriers to entry, which creates enduring and, hopefully, increasing asset values. Given these characteristics, listed infrastructure has historically delivered equity-like returns, but with about 300 basis points less volatility than the broader equity markets, and about 50 percent downside capture. That means, in periods when the market is down, infrastructure tends to be down only about half as much as the overall market.
We believe we are in the later stages of the business and economic cycle in many parts of the developed world. With that in mind, we expect to see higher risk premiums in the equity market going forward, accompanied by a lower return environment and a weaker credit environment — all of which we believe point to outperformance of assets that provide more predictable cash flows.