Unlisted infrastructure can provide strong returns, but investors are increasingly being locked out of the asset class, according to Infrastructure Partners Investment Fund (IPIF).
New research from IPIF says that a 15 per cent allocation to a highly diversified unlisted infrastructure portfolio can increase average annual performance by 45 basis points over a 20-year timeframe.
“85 per cent of the time, you’re going to be better off if you put 15 per cent of your money into unlisted infrastructure,” IPIF head of research and portfolio construction Kurt Lemke told media in Sydney.
“You have lower risk in your portfolio for having unlisted infrastructure. It’s just a matter of by how much. Using the 15 per cent story, what we find is – on average – your annual volatility is 1.4 per cent lower per year over 20 years.”
But wholesale investors are often unable to access the asset class due to prohibitive cost barriers and the limited number of unlisted infrastructure investment vehicles available to smaller investors.
“In the case of Port of Melbourne, it was a $10 billion-dollar transaction,” said IPIF chief investment officer Jonathan van Rooyen.
“It had four or so institutional investors, including Australia’s Future Fund and Queensland Investment Corporation, paying billions of dollars to secure a position. The retired dentist or teacher… has got no prospect of getting access to an investment like that.”
IPIF hopes that its research will lead to an increase in the number of highly diversified, well-established unlisted infrastructure portfolios and make the asset class more accessible for wholesale investors and SMSFs.
“We genuinely think this is an opportunity to democratise an asset class which has been limited and exclusive for some of those industry funds and institutional investors,” Mr van Rooyen said.
And while IPIF doesn’t believe that unlisted infrastructure should replace allocations to property, they do believe that the asset classes are complementary.
“It’s the stuff that we use all the time in Australia, everyday,” Mr Lemke said.
“Why are we not investing in it, as local Australians, the way we do our property? Why isn’t it as familiar to us and available to us? There’s something wrong with that at the fundamental level, and we need to fix that.”