The infrastructure funds sector has been cleaned up since the global financial crisis, which saw the failure of many heavily geared products resulting in considerable investor losses, the head of AMP Capital’s infrastructure area has said.
Advisers at the SMSF Professionals’ Association of Australia conference in Brisbane questioned whether they could trust infrastructure managers to deliver returns and manage risk for investors following the closure of numerous infrastructure funds during the financial crisis.
AMP Capital head of infrastructure for Australia and New Zealand Paul Foster said the funds in the market now contained fewer layers of gearing than many of the products available before the financial crisis. Fewer layers of gearing reduced risk.
Many managers had also been culled from the industry by the product failures, so those that remained had good track records, Foster added.
However, he warned advisers to be cautious about the infrastructure managers they chose.
“Partner selection is critical and taking time to get to know the partners you are planning to work with is critical,” he said.
Advisers should ensure the managers they worked with had interests aligned with those of their clients.
Foster said the long-term nature of infrastructure investments made them suitable for SMSFs, but the asset class was not homogenous and the characteristics of different types of infrastructure varied.
Social infrastructure, such as hospitals and schools, for example, carried low levels of income volatility because governments committed to paying a set income to the asset owners for the duration of the agreement, regardless of the level of usage. In contrast, income from assets such as airports and sea ports fluctuated with demand.
The biggest risk to infrastructure investors was the rate of real interest rates, Foster said, explaining that income flows from infrastructure assets became less valuable if interest rates rose without an accompanying rise in inflation.