UK infrastructure’s rapid transition from a niche to an increasingly mainstream asset class has been underlined by a new study, which reveals that over 6-in-10 (62 per cent) financial advisers are looking to increase their clients’ allocation to infrastructure over the next three years. This represents a dramatic increase from 32 per cent last year, with low correlation to equities and Brexit uncertainty said to be fuelling the increased appetite.

 

The new research, conducted among 200 intermediaries by Foresight Group LLP – a leading independent infrastructure and private equity investment manager – reveals that three-quarters (75 per cent) of respondents expect to see more infrastructure funds recommended to clients.

The growing demand for infrastructure is one of the key themes to emerge from Foresight’s survey in which advisers identified de-risking as the biggest change they had made to clients’ portfolios over the last year. 

 

Well over 90 per cent of advisers said they are increasingly concerned about a sustained downturn and increased volatility while three-quarters (75 per cent) are worried about the impact of interest rate rises. At an asset class level, clients’ exposure to UK equities, fixed income and global equities are causing the biggest headaches, according to advisers. 

 

Key drivers behind infrastructure fund attractiveness

 

Over three-quarters (76 per cent) of advisers said the main qualities sought through exposure to infrastructure are low correlation to equity markets, low volatility (58 per cent) and a defensive element (55 per cent) to their portfolios. Over a third (37 per cent) of IFAs cited Brexit uncertainty as another key driver behind the growing demand for infrastructure.

 

The study was commissioned to mark the first anniversary of the FP Foresight UK Infrastructure Income Fund (FIIF), which delivered a full year yield of 5.35 per cent and dividend payments of 5.35p per unit.  Since its launch on 4th December 2017, the fund has achieved significant capital appreciation contributing to a one-year total return of 11.65 per cent with annualised volatility of 4.6 per cent. In the same time period, the UK All Share delivered a total return of -1.27 per cent with annualised volatility of 11.1 per cent.

  

Producing stable returns, mitigating threats

 

“Continuing market volatility and clients’ overexposure to traditional asset classes such as equities and fixed income have given rise to a dramatic shift in sentiment towards infrastructure,” advised Mark Brennan, Lead Fund Manager. “With an increasing number of infrastructure funds accessible to retail investors entering the market, the opportunity is there for advisers to diversify client portfolios into an asset class that not only produces stable and predictable returns but mitigates many of the threats looming into view.

 

“FIIF’s performance over the past year amply demonstrates how high-quality infrastructure and renewable assets can deliver predictable income with low volatility, uncorrelated to traditional asset classes.” 

 

London-headquartered Foresight currently has some £2.8 billion of Assets Under Management across a number of funds, including Listed Vehicles, Limited Partnerships, Enterprise Investment Schemes (EISs), Venture Capital Trusts (VCTs) and Inheritance Tax Solutions using Business Property Relief (BPR).

 

As one of Europe’s leading solar infrastructure investment teams, Foresight funds currently manage more than £2.2 billion in infrastructure assets including 80 operating PhotoVoltaic plants in the UK, Southern Europe and Australia, with a generating capacity of more than 1.1GW. 

 

In Bioenergy, Foresight has mobilized £1 billion of capital investment into more than 40 investments in waste to energy projects, which when fully operational will have a waste processing capacity of 2 million tonnes per annum, diverting some 1 million tonnes of waste from landfill every year and generating 154MW of clean energy, saving 750,000 tonnes of CO2 emissions every year.