A society’s infrastructure is typically defined as the facilities, assets and systems serving its economy – such as transport and communication networks, schools, hospitals, water mains and power plants. As an asset class, it is becoming increasingly attractive to investors looking to diversify their portfolios. To meet the growing demand, UBS has established the Infrastructure Asset Management (IAM) business within Global Asset Management to manage both listed infrastructure securities and direct investment funds globally.
As investments, infrastructure assets are generally regarded as defensive – offering steady returns at relatively low risk. The monopolistic characteristics of many infrastructure assets and the high
barriers to entry for competitors mean that their financial performance is not as sensitive to the economic cycle as many other asset classes. In addition, the performance of infrastructure
assets usually has little correlation with traditional investments – making them an ideal tool to diversify investment portfolios. Investors such as pension funds, life insurance companies and
endowments – facing the need to meet long-term liabilities – find infrastructure investments particularly attractive. In addition to benefiting from enhanced diversification, these investors can use infrastructure to match their liability profile with a fairly predictable and partly inflation-linked
income stream. Infrastructure investments are also increasingly seen as an attractive asset class for wealth management clients who share institutional investors’ long-term horizons.
The infrastructure business comprises a total of 25 investment professionals who are located in London, New York, Hong Kong and Sydney. That number is expected to grow to 30 by the end
of 2007. In May 2007, the new business announced its first major investment – a 50% stake in Northern Star Generation LLC, an unregulated electric generation holding company, with ownership interests in 13 electric generation facilities in California, Colorado, Florida, Georgia, Nevada and
Pennsylvania. The transaction is expected to close in third quarter 2007, subject to regulatory approvals. This investment will be the seed asset for UBS’s flagship direct investment infrastructure fund. In addition, over the next couple of years, the business intends to roll out country-specific funds in China, India and Latin America as part of its emerging markets strategy. Complementing the direct unlisted fund offering, the business also manages a listed fund, the Global Infrastructure Securities Fund, which is available to Australian investors. It is an actively managed portfolio of primarily equity infrastructure securities listed on recognized international exchanges. A listed global infrastructure fund aimed at European retail investors is expected to be launched by fourth quarter 2007.
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