Recently, Chase McWhorter, Institutional Real Estate, Inc.’s managing director, Institutional Investing in Infrastructure, spoke with Cohen & Steers’ Benjamin Morton, senior vice president and portfolio manager for the firm’s infrastructure portfolios.
How do you define listed infrastructure in terms of assets and investment characteristics?
A textbook definition for infrastructure is the facilities and structures that provide essential services to the public and private enterprise, facilitating economic growth and improving quality of life. But for investors, what defines it as a distinct asset class is a focus on companies that own and operate infrastructure assets and collect fees for usage. These businesses are often regulated or operate under long-term concession agreements with local governments, resulting in relatively predictable cash flows. These features have historically produced equity-like returns, but with much lower volatility and attractive downside protection than the broader equity markets.
Can you give some examples?
Infrastructure companies are found in a broad range of industries.You have transportation, which includes toll roads, airports, marine ports, and both freight and passenger railways. There are utilities that provide electricity, water and gas. Communications infrastructure includes cell tower and satellite companies. Lastly, the energy category covers pipelines and other midstream energy assets, as well as renewable energy such as wind and solar. All of these share a common characteristic in that they produce relatively predictable cash flows, typically from fee-based businesses with long-term concessions or contracts.
What, then, does infrastructure not include, by your definition?
We exclude sectors like engineering, construction, and oil and gas production, which are peripherally related to infrastructure, but we believe do not provide the type of real asset–characteristics that we look for in owners and operators. These types of businesses tend to be more correlated with broader equities and more sensitive to economic cycles.
There has been a lot of interest in infrastructure, especially in recent years. How has that translated into actual allocations, particularly to listed infrastructure?
Allocations to infrastructure have grown significantly over the past decade, driven by an increasing focus on real assets among institutions and a recognition of the need for broader diversification. Similar to what we saw with listed real estate 25 years ago, allocations to infrastructure started with private or direct investment, but have evolved to where there is a growing interest in layering in an allocation to infrastructure through the listed market.