Infrastructure funds provide the opportunity to invest in essential public assets, such as toll roads, airports and rail facilities.
They are often attractive to investors looking for predictable returns, as infrastructure projects are typically characterised by low levels of competition and high barriers to entry. Some have the prices they charge subject to government regulation, with price increases requiring approval.
Infrastructure funds are managed by specialist fund managers, who make investment decisions on behalf of investors. Infrastructure assets include:
- toll roads
- communications assets such as broadcasting towers
- materials-handling facilities such as docks
- rail facilities and other transport assets
- utilities such as electricity power lines and gas pipelines.
Returns from infrastructure funds usually combine capital growth and dividend income in varying proportions.
In growth-orientated infrastructure funds, there may not be stable income in the near term but the fund seeks to achieve capital growth in the medium term. Infrastructure funds that generate steady income streams tend to invest in more mature assets.
Some funds adopt hybrid structures called ‘stapled securities’ funds
Stapled securities infrastructure funds provide investors with exposure to a funds management and/or another fund/company, as well as an infrastructure portfolio.
These securities are ‘stapled’ and cannot be traded separately. The fund holds the portfolio of assets, while the related company carries out the fund’s management functions and/or manages any development opportunities.
Investing in stapled securities can have tax implications for investors. You should seek your own taxation advice.