LONDON |
LONDON (Reuters) – Listed infrastructure funds in Britain expect to benefit from yield-hungry retail investors who take their money out of savings accounts to escape low deposit rates and invest in assets such as schools and hospitals.
Record low interest rates of 0.5 percent in Britain are driving many to seek an inflation hedge in infrastructure, a panel of listed infrastructure fund directors told the Reuters Global Real Estate and Infrastructure Summit in London.
This has not yet led to soaring demand for them. HICL Infrastructure (HICL.L) shares are down 2 percent since the start of the year, GCP Infrastructure is down 1 percent and John Laing Infrastructure Fund (JLIF.L) is flat, compared with a 4 percent drop in the London’s FTSE 100 .FTSE index.
“I’ve just been on a road show and every single person I talked to the first thing they ask is where can I get yield and inflation protection. Private client brokers all over Britain are desperately looking for homes for their money,” said Rollo Wright, a partner at GCP Infrastructure Investments.
GCP raised 40 million pounds ($63.9 million) in an initial public offering in London in August. It is one of five listed infrastructure funds in the UK.
Tony Roper, a director of InfraRed Capital Partners, HICL’s investment adviser, said it was difficult for start-ups to launch new listed infrastructure funds because they need to approach their market with a big enough portfolio of assets.
“Over half of our investors are now retail, a lot of them come from private client brokers,” Roper said.
“I know there are some families who have clearly bought 1,000 pounds worth of shares for their three children and you think that’s more of a trust fund reach for them. Retirees are also buying our shares for the annuity type,” he added.
While higher interest rates could bring some relief for savers, Roper said he did not feel this would hit his funds where it to happen.
“I’m relaxed because we started in 2006 when the whole environment was completely different anyway. The majority of our investors are in it for the long term and will not switch quickly should deposit rates rise again,” Roper said.
Listed infrastructure funds in Britain invest in social infrastructure procured under initiatives such as the Private Finance Initiative (PFI) or Public-Private Partnerships (PPPs), used by the government to attract private capital in projects.
While Britain’s coalition government is reviewing its PFI/PPP models, infrastructure fund managers said the exercise would more likely lead to a rebranding rather than any fundamental change in the way private capital is tapped.
“Using private finance in construction and infrastructure is that you actually get investment into an economy in a very wide base, much more so than any other industries, without the government incurring capital borrowing,” said Andrew Charlesworth, a fund manager at John Laing Infrastructure Fund.
HICL targets a 7 pence dividend on the pound by 2013 from 6.7 pence delivered to March. John Laing Infrastructure, which listed last year, targets a 6 pence dividend on the pound and GCP is targeting between 7 and 8 pence on the pound.
(Additional reporting by Cecilia Valente; Editing by Andrew Macdonald)
Corrects GCP’s target dividend in last paragraph to 7-8 pence.
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