Infrastructure Innovation – In More Ways Than One…

One of our core values is to be better in six months than we are today. For our investment team, that not only means constantly looking to improve ourselves and our process, but also striving to find new opportunities. This year we have progressed an idea in an asset class that all of us experience every day, and one that is also key to the future.

In 2015, on a test track near Mount Fuji, a state-of-the-art Japanese “mag-lev” (short for Magnetic Levitation) train set a new speed record of just over 600kmh (373 mph). Carrying seven carriages it covered 1.8km in just under 11 seconds. Pair this with advancements in renewable energy sources and the “internet-of-things” (a term describing the interconnectivity of everyday objects such as lightbulbs and fridges) and you start to pull together a snapshot of what life might look like in 10 years’ time. The common theme across all three developments… they are all forms of infrastructure.

Of course, infrastructure doesn’t just cover exciting new developments, it is everything from the phones we ring on, to the roads we drive on. Just like equities and bonds, it is an asset class in its own right, and it is one rich in history. The first Corduroy road for example, constructed by placing logs side by side, was built in England in 3300 BC. Open roads and canals made up the majority of infrastructure until the seventeen-hundreds, but as traffic levels increased, the first toll roads (Turnpike Trusts) were created to moderate flows. Importantly, this was the first step to monetising infrastructure, something that nowadays can be owned and traded just like bricks and mortar property.

Today, infrastructure spending in the United States sits at a 70-year low. The UK story isn’t much better – rammed tubes, pothole littered roads and late trains are all examples of the daily frustrations that have unfortunately now become normal. Governments are having to choose between repairing basic transport links and investing in more innovative developments like the rollout out of the next generation of high-speed internet access, 5G.

To emphasise the investment opportunity, the story doesn’t stop in the developed world either. For emerging economies, infrastructure is crucial to the successful transition towards a developed economy. More than two-thirds of the world’s population live in developing countries, and with the global population set to hit 8 billion by 2023, the need for infrastructure is clear to see.

So, with supply of infrastructure low and demand high, the investment case has a great starting base. Additional attractions are diversification benefits versus traditional asset classes like equities and bonds, and inflation-linked income, which can be especially attractive over the longer term. Until recently though, it has been very hard to access this opportunity via a suitable investment vehicle. Specifically, infrastructure investment opportunities to date have only been available in volatile forms, therefore increasing risk. However, we have been working with a fund management group to implement this idea in a safer way, and the initial proposition was launched in May last year. We have started to add this fund to our portfolio’s in recent weeks and as early stage adopters we have secured a very competitive cost structure for our clients.

We are always keen to demonstrate our search for value and opportunity in the investment world. In particular we are committed to innovation within our investment selection process as we believe it will be a significant driver of long-term growth.  Infrastructure is one of several developments that we believe will improve the investment return journey provided to clients over the months and years ahead. Like property, it is an asset class that affects us all directly……. it is also a cause that should help ensure welcome spin off benefits for the world at large.