Winner: HICL Infrastructure
Launched in March 2006, HICL Infrastructure (HICL) is the oldest of the 10 social and renewable infrastructure funds. Thanks to effective asset management, beneficial tax changes, and a series of value-accretive acquisitions funded by issuing shares at a premium, it has achieved average net asset value (NAV) total returns of 9.8 per cent a year since launch, comfortably exceeding its target of 7 to 8 per cent.
In the process its total assets have grown to well over £2 billion, bringing economies of scale. Its overriding objective is to deliver predictable and sustainably rising dividends. Over the decade HICL’s annual payouts have grown steadily from 6.1p (paid half yearly), to 7.65p (paid quarterly), with 7.85p forecast for the current year. It is the first winner of this new award category.
Like most other social infrastructure trusts, HICL has invested predominantly in a portfolio of government-backed concessions producing revenue that is mainly availability-based and inflation-linked. However, those concessions have finite lives, at the end of which they will be worthless. So at some stage HICL’s income will plateau and then fall, and its shares will have minimal value. Comfortingly, the average life of its concessions is currently close to 25 years, and manager Tony Roper of InfraRed Capital Partners is working hard to continue extending it.
With stiff competition pushing up the cost of adding new UK public/private partnership-style concessions, Roper has been considering raising HICL’s 23 per cent overseas exposure, and is keen to diversify into regulated assets such as gas transmission networks.
He is also prepared to add to its 12 per cent exposure to concessions that are more sensitive to changes in GDP, such as toll roads. He concedes they can be a little riskier than PPP concessions, but claims they are still attractive when properly structured, with long lives and good inflation correlation.
Highly commended: 3i Infrastructure
3i Infrastructure (3IN) achieved the best three-year net asset value total returns in the sector but misses out on winning the award because it did not beat the sector average in 2015/16. However it has the best 10-year total returns in the sector, and has grown its dividends faster than HICL over that period. Its greater volatility stems from its strategy of investing over 80 per cent of assets in unquoted firms involved in infrastructure-related activities, and only a little in concession-based projects such as roads and educational facilities.
This means it can aim for long-term capital and income growth, but is left more exposed to demand- rather than to availability-based income streams. Its portfolio is concentrated, with a quarter in Finnish electricity distributor Elenia, and a fifth in Anglian Water. Two thirds is overseas, mainly in Europe.
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