The ongoing concentration of the listed infrastructure sector in Australia is creating limited options for private investors, who should now consider investing overseas where more opportunities can be found, according to an Australian-based investment manager.
Ausbil Investment Management noted 2021 had been a “momentous year” for mergers and acquisitions in the Australian Securities Exchange (ASX)-listed Infrastructure sector and while these were beneficial for shareholders, the pool of essential infrastructure investment options had been reduced to less than five.
Ausbil co-heads of global listed infrastructure Tim Humphreys and Jonathan Reyes said the ASX-listed essential infrastructure space had more than 15 listed companies at its height, but since 2005 had dropped and will be reduced to four if transactions involving Sydney Airport and electricity infrastructure companies AusNet and Spark are completed.
“Globally, however, there is no shortage of essential infrastructure companies listed on stock exchanges in investment-grade developed markets,” Humphreys and Reyes noted.
“Globally, the listed infrastructure sector is set to grow larger as new government-owned assets hit the boards, older companies spin off infrastructure portfolios, the divestment of non-essential infrastructure, private equity listings to crystallise profits or trim portfolios, and because of the options public listings offer infrastructure equity holders.”
They pointed out this growth is an answer to the diminishing listed infrastructure options in Australia, while also providing diversification across quality toll roads, airports, mobile phone towers, energy infrastructure, regulated utilities and renewable energy companies, which fall under the essential infrastructure category.
“These markets offer the full potential for participating in the compelling secular growth offered by the energy transition, 5G and the internet of things. Global infrastructure offers the opportunity to exploit valuation discrepancies that can exist from time to time between regions and sectors,” the pair said.
“With a complete opportunity set of listed infrastructure assets across all the key sectors, across multiple markets, investors can fully capture the true characteristics of the infrastructure asset class: downside protection when equity markets fall, low correlation to global equities and relatively stable returns through the economic cycle.
“The shrinking listed infrastructure sector in Australia just serves to underscore that the full opportunity in the essential infrastructure asset class awaits offshore for those who are keen to capture its benefits.”''