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A closer look at infrastructure

Owen Holdaway   |  24 May 2013Text size  Decrease  Increase  |  

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Geoff Frankish, head of infrastructure at Goldman Sachs Asset Management in Australia, talks InvestorWeekly’s Owen Holdaway about how investors can get infrastructure exposure and infrastructure’s unique characteristics. InvestorWeekly is a Sterling publication.

 

How did the fund get started?

I have been with Goldman Sachs for about 10 years now, running this fund for about seven. Prior to that I was on the sell side with Credit Suisse for about six years. But more relevant, before that I worked for the Victorian government. I did quite a lot of work on the commercialisation of public authorities and I was heavily involved in getting them ready for privatisation and corporatisation. A lot of the assets that are in the listed market are ones that I dealt with.

We had, about seven or eight years ago, a request from quite a major client of ours about making quite a big asset allocation investment towards infrastructure. They were very keen about the asset class. They were looking to replace the allocation that they had at that time to general equities, properties and fixed income, so they were looking at quite a major asset allocation restructure. What they liked was that infrastructure provided them with a really good combination of resilient earning and inflation protection; also, it gave them a replacement of income they were going to lose. So they asked us to set up a fund, which we did. They are still a major client of ours and they were joined by a bunch of other retail clients.

Why is it a good idea to have infrastructure exposure?

It is pretty much a unique offering in the Australian market. It enables the retail investors to be able to get access to infrastructure assets. There are stacks of transactions where large superannuation [funds] and large institutions gain access to this asset, but it is much more difficult for retail investors to gain access.

People should start to think about infrastructure as a separate asset class like fixed interest and general equities and real estate trusts. We think that there is plenty of evidence that infrastructure has different enough characteristics, to be treated as an asset class in [its] own right.

I think there are two or three infrastructure distinct characteristics. The first is infrastructure has a very good earning resilience, because of the fact they have very strong, often monopolistic market positions. They also have very good pricing power and also they [often] get long-term contracts that they can draw on.

They are a lot less susceptible to changes in economic activity than the rest of the economy.

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