Jennifer Hill, Investment Trust Insider, 19 March 2025:
A few short years ago, the listed infrastructure sector was motoring ahead with regular fund launches and capital raises. In a lower interest rate environment, investors eagerly hitched a ride, drawn to the robust yields and reliable income.
But when interest rates and bond yields began to climb, investors bailed, sending shares from premiums to discounts – where they now seem stubbornly stuck in neutral..
Other factors across the investment trust universe have disproportionately affected smaller, less liquid trusts. These include misapplied regulatory rules on cost disclosure (an issue that remains unresolved with the FCA’s consultation on the consumer composite investments framework still underway) and consolidation within the wealth management industry, which has reduced the capacity to hold smaller trusts.
‘These issues are well documented, so there’s no need to rehash them here, except to say that [listed renewables and infrastructure] are exactly the types of investment companies that professional investors ought to be buying but aren’t,’ said Matthew Read, senior analyst at QuotedData.
And therein lies the crux of the problem: a significant supply/demand imbalance.
Read believes the current number of funds across the infrastructure and renewable energy infrastructure sectors is appropriate in a world of ageing infrastructure, cash-strapped governments, and insufficient progress in the net-zero transition as politicians backpedal on climate commitments..
The nature of infrastructure assets is another major stumbling block on the road to consolidation. As noted by QuotedData, these assets are unlisted and long-lived, ranging from 25 years for a solar or wind farm to 150 years for a toll road or bridge.
‘The kinds of risks associated with them are not easy to hedge out to isolate just the discount opportunity and so despite these funds being heavily discounted and asset sales usually coming at small premiums and therefore justifying the NAVs, they’ve not attracted the attention of the usual discount arbitrageurs,’ said Read.
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