Below are the characteristics we seek in a listed infrastructure investment:
High barriers to entry
The nature of infrastructure assets often makes it hard for other companies to compete with the existing operator. Examples include electricity and gas distribution networks, toll roads with non-compete clauses and city airports with restricted flight paths.
Infrastructure assets are usually able to raise the price of their services steadily over time. This can be due to toll increases linked to inflation, regulated real returns, or high barriers to entry making competition difficult.
Predictable cash flows
Infrastructure assets have the potential to generate stable and highly predictable cash flows over long time frames, although there is no guarantee. This predictability is underpinned by infrastructure’s essential service nature, regulated returns, long-term contracts and limited economic sensitivity.
Infrastructure assets generally have a growth profile supported by long-term economic and demographic trends. They tend to be relatively immune to economic cycles, and exhibit defensive qualities in falling markets.