How listed and unlisted infrastructure can help investors achieve their objectives

This post is sponsored by CBRE Clarion Securities.

A persistent debate exists in real assets markets, including infrastructure, over whether private, unlisted vehicles are the best way to invest or if public, listed investments make the most sense. But what that debate misses is the benefits of investing in both.

In the institutional real estate investment, for example, many investors do in fact invest in the public and private markets. Institutional real estate investing has developed into a mature market during the past 35 years, and investors have had time to get up the learning curve.

In the past, real estate investors trying to get comfortable with the idea of investing in the two strategies had to deal with the uncertainties of a new strategy — similar to what many investors today’s infrastructure markets experience. But with decades of data to illustrate the benefits, investing in both listed and unlisted commercial real estate now has many believers, and infrastructure investors could follow.

“The question of listed versus unlisted often becomes ‘us versus them’ and either/or,” says Jeremy Anagnos, CIO of infrastructure with CBRE Clarion Securities. “But there are many good reasons to allocate to both.”

In the case of infrastructure investing, for example, there is now more than $100 billion of investment capital that has yet to be invested targeting unlisted markets with investors expected to allocate more next year; managers of all that capital will be competing for the same investments — largely core assets — but not all of them can win.

That will mean investors will wait, in some cases up to two to three years, for commitments to be called for an investment — leaving allocations short of their targets.

But some seasoned investors have an answer for that. In Australia, investors have a long track record of infrastructure investing, including listed infrastructure. Compared with the sectors in the broader public equity markets, listed infrastructure offers investors a much larger and deeper set of investment opportunities. The market capitalization of the listed infrastructure market is $3 trillion, which dwarfs most other sectors.

“A listed infrastructure allocation allows the investor to get invested immediately and enjoy the benefits of the asset class,” says Anagnos. “They don’t have to wait for their unlisted fund to make a call for capital years after they decided to allocate.”

Another edge listed infrastructure can give to investors is the ability to react to today’s uncertain markets. According to a recent survey by Deloitte, 90 percent of investors with investments in Europe indicated that political and regulatory risks has increased dramatically over the past five years, and nearly two-thirds expect that trend to continue over the next five years.

The nimbleness afforded by listed infrastructure investments can help investors in several ways — first, they can move out of sectors or regions that experience unexpected regulatory or political risks, and second, they can allow investors to arbitrage between listed and private markets, so that when listed markets are priced high, they can move out and allocate into private markets, whose pricing movements typically lag the listed markets by three to six months.

As the institutional infrastructure market continues to grow and mature, investors could find investing in both listed and unlisted infrastructure provides the best approach to their infrastructure allocations.


DrewWebsiteThis post is sponsored by CBRE Clarion Securities.

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Drew Campbell is senior editor of Institutional Investing in Infrastructure.