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    Infrastructure in a multi-asset strategy

    Infrastructure in a multi-asset strategy

    24 July 2023 Multi-asset
    • The listed infrastructure market is growing rapidly in size, with new companies helping to finance a societal shift infrastructure demand.
    • We believe this evolution is creating assets that fit well within a multi-asset strategy, particularly as they are more resilient to changes in the economic cycle. We have been shifting the composition of our holdings to take advantage of this opportunity.
    • Infrastructure has been a core element of our multi-asset strategy for many years. Our focus has been on less economically sensitive parts of the infrastructure universe - concentrating on assets that produce stable long-term cashflows, often linked to inflation, that can have a low beta to global equities.
    • Given a focus on social and environmentally supportive infrastructure, many of these assets are of natural interest to investors seeking to invest responsibly, but engagement is key to ensure that their ESG goals are being carried through.

    A larger, deeper market providing a broader opportunity set

    While providing global exposure, the regulatory framework and investor demand has led to the UK market to be an attractive hub and focal point for listing of closed ended investment companies. By the end of 2021 there were over 30 listed infrastructure companies (see Figure 1) with a total market capitalisation of over $50bn. There were no new listed infrastructure companies in 2022, so this remains broadly unchanged to the current time.

    Figure 1: The number of listed closed-end infrastructure companies has trended higher1

    The number of listed closed-end infrastructure companies has trended higher

    Source1: Insight and Bloomberg. Data as at 28 February 2023. Note there were no new infrastructure companies listed in 2022.

    Figure 2: As more companies launch, so the market opportunity set has diversified2

    As more companies launch, so the market opportunity set has diversified

    Source2: Insight and Bloomberg. Data as at 28 February 2023. Encompasses all fully UK listed closed end investment companies in the infrastructure sector.

    When we search for infrastructure holdings that are suitable as part of a broader multi-asset strategy, we believe that the following sectors best fit the requirements of multi-asset investors:

    • Renewable energy, which is a rapidly growing sector that is at the more resilient end of economic sensitivity spectrum.
    • Social infrastructure including investments that promote social development and quality of life and seek to have a positive impact on communities
    • Economic infrastructure that is resilient to the economic cycle and which we believe over time will benefit from more stable revenue streams.
    • Infrastructure debt, linked to investments in social, renewable, and economic infrastructure investments.

    Engagement is important to ensure ESG goals are being met

    We ensure that all of our infrastructure holdings, or their underlying investment manager, are signatories to the UN Principles for Responsible Investment (PRI), all of them have sustainable investment strategies and many have key performance indicators that are explicitly linked to sustainability goals. However, we believe that active engagement also plays an important role to ensure that companies remain on track and progress.

    As part of the multi-asset team’s approach to stewardship we require that a proprietary ESG questionnaire is completed, providing detailed answers on issues not covered within standard publications. Where we identify issues, or events justify it, this helps focus our research and engagement when meeting with the appropriate representatives of the company to discuss.

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