Infrastructure is not immune to the current economic malaise, but it is important to isolate macroeconomic variables for each investment. “Analysing sectors or asset classes is not enough: you have to analyse each asset to determine its macro impact.”
So says Heiko Schupp (photo), infrastructure fund manager at Columbia Threadneedle, in an interview with InvestmentOfficer.be.
Infrastructure is part of the search for alternative investments that are not correlated with traditional asset classes such as stocks and bonds. “What is interesting about infrastructure is that just about all the sub-segments benefit from higher inflation. That’s a pretty rare feature when you contrast that with all asset classes.”
Above all, Schupp wants to build portfolios that are resilient and flexible across cycles. “You don’t necessarily perform better in a boom period, but you are better able to stay afloat in downturns.”
Subsectors
Schupp said Columbia Threadneedle’s approach has always been based on macroeconomic assumptions and analysis. “We have sector preferences and look at how resilient these sectors are to macroeconomic variables. We want to perform well regardless of market volatility.”
A focus on sectors is secondary to macroeconomic asset resilience, he said. “Sustainability has been the defining element for us, from the beginning. It is very popular now, but if an asset is not sustainable, we cannot possibly invest in it.”
That immediately bridges to sustainable infrastructure classes such as hydropower and other investments in the renewable energy sector, which he also invests in. “Capex investments are a key driver for infrastructure investments in the future. That should be a focus. We are not adding much value to each other if we just sell operating assets to each other. There needs to be additions such as roads, bridges and schools.”
Regionally, Schupp looks mainly at OECD countries, with a focus on Europe. “We are not so keen on global investments in this segment because we face fiscal challenges there. So we prefer to keep it in this region, which we know well.|
General trend
Increasingly, Investment Officer, hears in its conversations with asset owners and managers that private assets are on the rise as an alternative to listed investments.
“In a previous life, I worked for a company that had listed and unlisted products, and I think the problem is that you can’t really exclude the beta of infrastructure investments when talking about listed investments,” Schupp said.
Infrastructure can also be a way to include decorrelating asset classes in a diversified portfolio, according to Schupp. Indeed, a 60/40 portfolio is increasingly being questioned as nominal government bonds no longer offer a perfect hedge against equity risk.
The manager noted that the average yield on infrastructure over a 10-year period, between 2009 and 2019, was always around 5 per cent. “That is a remarkably stable yield. The challenge, though, is that not all managers pay out that yield. If you replaced part of your fixed-income investments with an infrastructure investment, you would get a nice yield, but you have to find a structure that has an incentive to pay out that yield. That is an interesting challenge for institutional investors in my opinion,” he concluded.
This interview was originally published in Dutch on InvestmentOfficer.be.