While infrastructure investments tend to underperform when bond yields are rising, the assets which may outperform are those which contribute to achieving ESG goals, according to Edward Hunt, manager of the HICL investment trust.
Hunt said that new infrastructure projects coming on stream, or being funded now, “really do have an ESG element, especially in terms of how these projects are contributing to the modernisation of facilities. Quite often, as infrastructure investors we are investing in essential public infrastructure which again has an ESG element to it.”
From an investment perspective, he said the yields on many of the assets are inflation-linked, and so shouldn’t fall in line with rising bond yields or interest rates, even if the market consensus view is that higher bond yields mean poorer performance for infrastructure assets.
This is because many market participants take the view that when bond yields are low, investors seeking a particular level of income move into alternatives such as infrastructure assets, but when bond yields rise, they move back to bonds.
Hunt said there is at present a huge difference between the markets fears around value of unquoted infrastructure assets, and the price those assets are actually sold for.
He said his trust have made a number of sales at higher prices than are presently reflected in the accounts.
David.Thorpe@ft.com
