The future is bright… but it will be a bumpy ride

Infrastructure assets encompass public and private physical structures and facilities which are essential for the stability and growth of any economy as they provide valuable services to society. These “hard infrastructure” assets mainly operate across four broad sectors – Utilities, Energy, Transportation, Communications.

Global Listed Infrastructure (GLI) refers to publicly traded companies which own and/or operate infrastructure assets worldwide. Over the past decade, we have seen more and more interest in the asset class as investors have increased their allocation to GLI. In turn, gaining liquid exposure to direct infrastructure and having a defensive building block as part of a diversified equity portfolio.

GLI as a liquid proxy for direct infrastructure

We believe investors globally now consider GLI as a liquid alternative to unlisted infrastructure, contributing to the asset class’ significant growth in the past decade . Unlisted infrastructure has distinct characteristics (namely, the ability to secure control of an asset and the lack of mark-to-market valuations), however we believe the long-term total return outcomes are more aligned with listed infrastructure despite the higher volatility due to the daily pricing available on its underlying assets. 

As seen in the total return breakdown charts below, the multiple effect can provide a headwind or a tailwind  to listed infrastructure’s annual returns, yet in the long run, it is infrastructure asset’s underlying profit growth and dividend payments that drives total returns: not its ownership structure. Additionally, while unlisted infrastructure can have lower perceived volatility, we believe it exhibits higher transaction costs, lower liquidity, and more concentrated portfolios. On top of usually requiring higher minimum investments.

Chart 1: Total return breakdown

Source: Bloomberg. Data from 31 December 2007 to 31 December 2024. The bars in the charts represent an arithmetic sum whilst the total return is calculated using a geometric sum.

GLI can provide defensive exposure in a diversified equity portfolio

GLI has historically exhibited predictable, resilient, and inflation hedged earnings’ growth: supported by high cash distribution levels. Arguably, appealing features for asset allocators searching for a defensive building block with a low correlation to global equities to complement their portfolio.

The asset class’ defensive characteristics are reflected in its performance, with potentially attractive upside/ downside capture. We believe the below chart echoes this, measuring the degree to which listed infrastructure participates in global equities’ upside during “up” months and global equities’ downside during “down” months. In turn, highlighting how the asset class’ defensive characteristics can play an important role in well-diversified asset allocation.

Chart 2: Upside vs. downside market capture

Source: Bloomberg as at 31 December 2024

How is the asset class currently trading? 

As seen in Chart 1, the multiple effect has been a headwind for the asset class over the last two years; muting the asset class’ share price performance. Nonetheless, GLI has benefitted from inflationary tailwinds and continues to deliver resilient income and profit growth. However, GLI trades at a wide discount to Global Equities (see Chart 3) across various valuation multiples. 

Chart 3: Valuation metric comparisons

Source: Bloomberg as at 31 December 2024.

As shown above, the spread across multiple metrics screens as, arguably, attractive compared to historical level. As such, we believe the current trading environment presents a potential opportunity. 

Key Investment Risks

• Liquidity Risk – Investors may be unable to dispose of an investment quickly or at all and at a price that’s closely related to recent similar transactions, if any. There is no guarantee of distributions and secondary market is expected to be established.
• Alternatives – There are additional risks associated with specific alternative investments within the portfolios; these investments may be less readily realisable than others and it may therefore be difficult to sell in a timely manner at a reasonable price or to obtain reliable information about their value; there may also be greater potential for significant price movements.
• Event Risk – A significant event may cause a substantial decline in the market value of all securities.
• Long-term Horizon – Investors should expect to be locked-in for the full term of the investment, which is subject to extensions.
• No Capital Protection – Investors may lose the entirety of invested capital.
• Unpredictable Cashflows – Capital may be called and distributed at short notice.
• Economic Conditions – Ability to realise/divest from existing investments depends on market conditions and the regulatory environment.
• Risk of Forfeiture – Failure to make call payments could result in forfeiture of commitment, including invested capital, without compensation.
• Default Risk – In the event of default investors risk losing their entire remaining interest in the vehicle and may be subject to legal proceedings to recover unfunded commitments.
• Reliance on Third-party Management Teams – Underlying investments will be managed by various third-party management teams that will in aggregate determine the eventual returns for the investor, if any.

The risk factors listed above are not exhaustive. Please refer to the official product documentation for the full and detailed risk disclosures.

Author biography

Giuseppe Corona is the Head of Listed Real Assets at HSBC Asset Management, based in the London office. He joined the financial industry in 1999 and began portfolio management in 2008. Prior to joining HSBC, Mr Corona spent ten years in AMP Capital’s Global Listed Infrastructure Team where he was appointed Head of Global Listed Infrastructure in 2016. He has also spent time with Exane-BNP Paribas, Swan, and Bear Stearns.

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