- The fund’s investment philosophy begins with building an investable universe that is defined by identifying “pure” infrastructure which own and operate physical assets (e.g. utilities, ports, toll roads) rather than support existing services (e.g. data centres). In addition, it then excludes companies with meaningful commodity price exposure. As a result the investable universe at the moment is around 120-130 global companies.
- “Our process is to forecast the long-term cash flows each of the assets of every company in our investable universe will generate and then discount this back to the present using a modified Capital Asset Pricing Model (CAPM) approach,” said Frishberg. “The ultimate goal is to identify areas where we can invest in attractive, growing infrastructure companies that are trading below what we determined to be the intrinsic value created by their long term cash flows.”
- Based on the belief that active management within the asset class gives the greatest chance of success, the end portfolio comprises some 45-50 companies – half of which Frishberg noted are not currently in its benchmark index.
- “There is no perfect benchmark in the global listed infrastructure universe,” he said. “There are three primary indices, which all have their strengths and weaknesses, and it’s our belief that we can build a portfolio that better optimises the risk/return trade-off.”
- He added: “Global listed infrastructure has only around 3% overlap with the MSCI World index, presenting diversification opportunities and representing an inefficient and under-researched segment of the market, where knowledge asymmetries exist and can be exploited through active management. As a result, subsector and country return variations have historically been highly divergent, presenting opportunities for active managers to add alpha.”