Infratil’s first quarter of a century delivered exceptional returns for shareholders.
The rewards came from finding opportunities to invest in infrastructure businesses experiencing demand growing faster than the economy as a whole, where the businesses could sensibly and productively invest to meet the needs of their communities, and where there was financial resilience.
Delivering returns over the long-term requires survival over the long-term. For that reason Infratil maintains diverse exposures; recognising that the future is uncertain and the pursuit of returns should always be balanced by the management of risk.
Diversity also creates options as the next windfall might come from a surprising place.
The last ten years have been kind to investors. The NZX50 returned 14.3% per annum. The ASX200 10.4% per annum. Infratil 16.7% per annum.
Over the full twenty five years to 31 March 2019 Infratil’s shareholder returns were a compound 17.5% per annum, through capital growth and a reliable growing dividend.
To achieve this, Infratil’s investment approach has evolved since 1994 to entail:
Finding infrastructure opportunities where demand is growing and invest where there is the prospect of fair returns that compensate for risks and endeavour, and sufficient scale to warrant intensive management.
Growing capacity and services to meet customer and community needs.
Ensuring funding and investment diversity so that changes in circumstances can be withstood and opportunities taken.
Building long-term partnerships with co-investors that have aligned interests and values.
The infrastructure investment market is competitive and has changed over the last decade as ultra-low interest rates have obliged institutional investors to shift part of their capital from bonds into “bond-like” investments. This has impacted the returns available on some low-risk infrastructure assets. As described in this Report, this has enabled Infratil to create value by developing and building infrastructure assets which can be de-risked to provide investments for institutional investors.
Investors have ample opportunities to buy shares in energy companies, airports, social and data infrastructure; why invest through Infratil?
“The two most powerful warriors are patience and time.” Tolstoy. For most investors; buying, holding and reaping the benefits of low transaction costs and compound returns is a winning formula. But Infratil can claim additional advantages. Its extensive research capability has made the company good at assessing growth opportunities. Its track record and scale means that it gets to see a lot of opportunities and it can commit considerable capital. It is recognised as a good partner by the individuals and communities its businesses service, and by co-investors.
Infratil’s returns have been driven by investing in areas of strong demand growth. While the economy as a whole is expanding at about 2% per annum some segments are growing much more rapidly; air travel, retirement living, renewable energy, electronic data and its transmission. Each offers growth and returns above the average, for the foreseeable future.
The current investment environment is dominated by ultra-low interest rates. This has created an opportunity to develop infrastructure assets which suit the needs of institutional investors seeking bond-like returns. As illustrated by Infratil’s experience with Australian student accommodation and US renewable generation, a development approach to infrastructure can deliver significant gains and is another way in which Infratil can add value for its shareholders.