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GBIM Newsletter – Quarter 1 2017 – Bridging the gap – diversifying through infrastructure

Posted: 22nd May 2017  /  By: GBIM
Categories: General News  /  Comments: 0

Back in 2004 when GBIM began, we asked ourselves, “How would I like to be treated?” As a result we formulated six principles designed to ensure that we put our clients first. The fifth of these was “To have the risks and opportunities in my portfolio diversified”. While we recognised that listed equities and bonds would be the proven long-term assets which would form the core of most portfolios, at the same time we realised that returns on other asset classes could also be compelling. We felt that the clients would be better met by diversifying assets beyond the traditional asset classes into the evolving area known as alternative asset classes or ‘alternatives’.

At that time, the alternatives we had foremost in our minds were commercial property, private equity and hedge funds. These had typically been outside the scope of the normal private client investor, being more commonly found in the portfolios of family offices and endowments. Technically they were harder to invest in as more often than not funds had to be subscribed when the manager of the investment fund required, rather than when it suited the client to invest. Thee evolution of the listed investment company (a closed ended vehicle similar to an investment trust whose shares are traded on the stock-exchange like those of an ordinary company and whose assets are those same alternatives referred to above) provided a more accessible route for private investors and their portfolio managers to gain access to these new markets.

In 2006, a new form of alternative made its appearance on the London market: infrastructure. The attractions of infrastructure had first been discovered by institutional investors looking for long-term cash flows. These suited the need to match their long-term liabilities, which were often related to expected pension or insurance pay-outs. In 2006 however, when two listed investment companies were launched holding specifically infrastructure assets, for the first time it became possible for private client investors to access these same cash flows. We’ve come a long way from 2006 and today there are many listed investment companies which provide investors with a wide range of actual infrastructure assets in which to invest. It’s important to note that this is different from investing in the equities of companies constructing and developing infrastructure projects around the world.

So, what do we mean by “infrastructure”? President Trump’s plans for massive infrastructure spending in the United States has given this term a much higher media profile than it has had previously, but every country in the world needs it. Some say that more money will be spent on infrastructure in the next 40 years than in the last 4,000.

Broadly, there are two types of infrastructure asset. Availability assets – such as hospitals, schools and other ‘social’ infrastructure- tend to be procured under public-private partnerships, such as the UK’s Private Finance Initiative (PFI). As long as the asset is available for use, the user, such as an NHS trust hospital, is obliged to make the agreed payments. UK government spending on infrastructure has fallen sharply since the 1970s and despite the Organisation for Economic Co-operation and Development (OECD)…….(cont)

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GBIM, Gore Browne and Gore Browne Investment Management are trading styles of GBIM Limited which is authorised and regulated by the Financial Conduct Authority (FCA number 593265) and is a limited company registered in England (07746731). Registered and Head Office at Chequers Court, 37 Brown Street, Salisbury, Wiltshire, SP1 2AS

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