Explore institutional insights
AUGUST 3, 2022
Helen Price, Chief Financial Officer, Core Income Funds at InfraRed Capital Partners, discusses the benefits of investing in infrastructure during rising rates and inflation.
Steve Peacher: Hi everybody it's Steve Peacher from SLC Management and thank you for dialing into this episode. Today I’m with Helen price who is in London at InfraRed and is the CFO of their core fixed infrastructure funds. So, Helen thanks for taking a few minutes with us today.
Helen Price: Thanks so much, Steve
Steve Peacher: So, the topic that we want to talk about was the impact of inflation on infrastructure assets, so let me just start with that one, what is the main impact of inflation on infrastructure assets, especially since we're running at such high inflation rates around the world these days?
Helen Price: Yeah so, it's got a really important impact actually because infrastructure assets and the companies themselves have an ability to pass through higher inflation. And that means that investment funds are very highly correlated to inflation and they can benefit from increased revenues and also increased cash flows from the companies in which they invest. So we have investments in regulated entities, they have contracts that are linked to inflation. And they've got an ability to pass through inflation raises to their customers. We invest in toll roads and those have contraction mechanisms in them as well to enable you to increase your revenue in line usually with CPI. And then last but not least, we also have investments in in PPP, so public private partnerships, that are backed by governments and they are typically also linked to inflation. And we've really seen over the last couple of months as inflation has both increased in actual terms and also in forecast terms that listed infrastructure funds have done very well in terms of share price performance because of their inflation correlation.
Steve Peacher: So, is this correlation a key factor do you think when you look at the motivations for investors going into or maybe said this way, why is this inflation correlation that you mentioned so important for investors?
Helen Price: Because it helps to protect real returns, so enables investors capital to be better protected and so you know you can do that by investing in a carefully constructed portfolio that allows you to get the protection and allows you to both get growth but also higher revenues.
Steve Peacher: Obviously, higher inflation means higher interest rates and we've seen that across the globe, and so you know to what extent should investors in infrastructure be concerned about rising rates and the impact on valuations in the sector?
Helen Price: This is clearly something that we think about, and we've been very focused on it over the last six months. I think the first thing to say is that for us, we don't see interest rates and inflation moving in step and whilst we have seen increases in inflation, the competitiveness and the attractiveness of infrastructure assets is outweighing any impact of interest raises. These assets are in short supply, they provide long term stable cash flows for investors, and if you're trying to protect liabilities, they're absolutely great for that and they're also a really good hedge for you against stock market volatility, so we think the combination of all of that means that investors should be conscious of it, but that also competing and important items to protect you.
Steve Peacher: Well, I do think this is one of the asset classes, it's been hard to find any place to hide in this market with rates backing up and equities going down and the risk to other risk assets, but as a sector where you do have a major mitigant given some of the inflation correlation protections that you're talking about it, it does make an as a class like infrastructure stand out as maybe more attractive than other asset classes in in this kind of environment.
Helen Price: Exactly.
Steve Peacher: I like to end these with a personal question. Before we recorded this, we were talking about that you've recently been on vacation and you told me you read 10 books you're either on vacation for a month or your speed reader like my life is, so but anyway I’m always looking, I think our listeners are always looking for good book recommendation, so of the books you read what could you throw out to people?
Helen Price: The main one is the “Paper Palace,” I was away for two weeks so as always, a book a day. And for those of you who are fans of “The Devil Wears Prada,” the latest biography of Anna Wintour provides some real-life examples of that film, so I’d highly recommend that as well.
Steve Peacher: Okay that's great, well I got those written down, so I don't think I’ll get through those in a day, but I’ll do my best. So Helen thank you very much, that was really great and thanks to everybody for listening to this episode of “Three in Five.”
This podcast is intended for institutional investors. The information in this podcast is not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information contained in this podcast. This podcast may present materials or statements which reflect expectations or forecasts of future events. Such forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. As such, do not place undue reliance upon such forward-looking statements. All opinions and commentary are subject to change without notice and are provided in good faith without legal responsibility.