Infrastructure assets generally have a strong market position, often operating within regulated markets, or with revenues underpinned by strong, long-term contracts.
3i invests in Infrastructure through two vehicles
3i Infrastructure plc
3i Infrastructure plc (“3iN”) is a closed-ended investment company that invests in infrastructure businesses and assets, and is incorporated in Jersey. It is building a diversified portfolio of infrastructure investments across the globe, with a focus on Europe and India. 3iN listed on the London Stock Exchange in March 2007 and is a constituent of the FTSE 250 index. 3i owns a 35% holding in 3iN and acts as its Investment Adviser.
3i India Infrastructure Fund
The 3i India Infrastructure Fund (“3iIIF”), managed by 3i, is a $1.2 billion LP fund that invests in the rapidly growing Indian infrastructure market. It focuses on the power, ports, road and airport sectors. 3i and 3iN have each committed $250 million to this fund alongside other private investors.
3i acts as Investment Adviser to 3i Infrastructure plc. Notable investments made by 3iN include:
- Anglian Water Group (UK), the fourth largest water and wastewater company in England and Wales (cost of £162 million)
- Eversholt Rail Group (UK), one of the three leading rail rolling stock companies in the UK, which owns and leases out approximately 29% of the current British rail fleet (£151 million)
- Oystercatcher (Netherlands, Malta, Singapore), the vehicle through which 3iN invested in 45% holdings in three subsidiaries of Oiltanking GmbH, a provider of third-party storage facilities for oil and petroleum products (£85 million)
- Octagon (UK), a concession company under a 35-year PFI contract to build, operate and maintain the Norfolk and Norwich University Hospital (£20 million)
3i also manages the 3i India Infrastructure Fund. Notable investments made by 3iIIF include:
- Adani Power Limited, one of the largest independent power producers in India, with a total operating capacity of 2,640MW, a further 2,640MW scheduled to become operational in the next six months and a further 9,900MW under construction (cost of $243 million)
- Krishnapatnam Port Company Limited, which has a concession to develop, operate and maintain the port of Krishnapatnam in the state of Andhra Pradesh ($161 million)
- Soma Enterprise Limited, one of the fastest growing infrastructure developers in India, focused on build-operate-transfer (“BOT”) road projects, as well as on projects diversified across sectors such as hydro power, irrigation, railways, power transmission and urban infrastructure ($101 million)
Key characteristics of the infrastructure asset class
Infrastructure assets can be described as “essential”, either because they support economic activity and economic growth (eg utilities or transport infrastructure) or because they support important social functions (eg education or healthcare facilities).
Key characteristics of infrastructure assets include:
- Strong market positions
- Capital-intensive businesses
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Some degree of inflation linkage
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Low cyclical volatility
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Predictable, income-oriented returns when operational
- Potential for capital growth
Infrastructure assets usually have a low correlation with other asset classes, including equities and fixed income. The quality and predictability of cash flows tends to result in attractive distributions to shareholders.
Risk-return spectrum
The infrastructure asset class it offers the possibility of diversifying investments across the risk/ return spectrum. The infrastructure asset class can be subdivided into three main categories:
- social infrastructure/PPP/PFI
- “hybrid” infrastructure
As shown in the chart below, returns from these assets typically range between 8% and 15% or greater, depending on the risks associated with the investment.
Yields generated from the assets also vary, depending, among other factors, on the stage of development of the asset (eg assets under construction versus operational assets).
3i, through its two investing vehicles, offers exposure to all three categories of assets.
3iN has exposure across the spectrum but invests principally in “core” infrastructure assets, such as regulated utilities and transportation assets in the developed world and in social infrastructure assets.
The 3i India Infrastructure Fund’s investments can be categorised as “hybrid” infrastructure assets, which have higher country risks, or a higher correlation to the macroeconomic cycle.
Within these three categories, 3i focuses on assets in the Utilities, Transportation, and in the Social Infrastructure sectors.
