There are a number of publicly available infrastructure indices, however we consider that none of them currently provides a complete and / or concise listing of the listed infrastructure assets that would be appropriate for client portfolios. Therefore, we have constructed our own universe of securities investable that meet our investment criteria.
The criteria for inclusion in the investment universe are as follows:
At least 50% of the value should be from infrastructure
The cash flows should have sufficient ‘infrastructure qualities’ defined as having the following characteristics (which we assess using a quality score for each asset):
Long duration assets
Resilient and predictable cash flows
Inflation protected (directly or indirectly)
Monopoly or effective monopoly assets
There should be sufficient liquidity for a client to take a meaningful position in a potential portfolio
The asset needs to be analysable within the research framework i.e. there needs to be sufficient disclosure and transparency to conduct due diligence and value the future cash flows on the same basis as other portfolio assets.
We have identified approximately 150 stocks which fulfil this criteria and which constitute the ATLAS investment universe. This investment universe has a market capitalisation of approximately US$2.0tn providing excellent scope for the identification of attractively priced investment opportunities.
Industry & Sector Analysis
Our investment approach is centred around a strong sectoral focus. All investment research starts at the level of understanding the sector dynamics in detail and understanding the differences between the companies within that sector. This may include:
Regulation, concession or contract structures
Local economic factors and drivers
Differences in user bases or counterparties
Company Meetings & Due Diligence
We would always look to contact and meet with management prior to any asset investment. In most cases we would also look to conduct site visits for the key assets. We do not have a formal ‘schedule’ for company meetings as the frequency and intensity of company contact will vary greatly depending upon the nature of the business and the current operating environment. For example, in a regulated utility with five year determinations, the majority of intensive company contact will occur in the 18 months prior to the regulatory determination and in the 12 months immediately after.
We also look to meet with regulators and government officials to understand the direction and intention of regulatory policy in the sector. Where relevant we will meet with customers and suppliers (e.g. major shipping customers for ports, coal companies for rail operators) to conduct due diligence on the company’s position and business sustainability.
Financial Analysis & Modelling
We use standard financial model templates for our analysis and forecasting. We also use standard templates for specific infrastructure assets (i.e. toll roads, airports, US utilities etc) which both improves resource efficiency and improves comparability of results. It also allows any other member of the team to pick up and update a financial model if required.
Peer Review, Challenge & Discussion
Peer review and team discussion is an important part of the research process and we encourage and expect the team to be involved and to be contributing at all stages of the research process. The intention of the peer review process is to:
Ensure that all relevant information is captured to generate the most reliable forward cash flow forecasts and risk assessment
Socialise the assumptions and the investment case such that no one individual ‘owns’ a particular investment case or portfolio position
Ensure that all members of Investment Committees have a full understanding of the underlying assumptions supporting the investment case for all portfolio assets and that, if required, any member of the team can pick up a financial model and adjust it for a new piece of information
INVESTMENT DECISION MAKING
The aim of the portfolio construction process is to use the outputs of the research process to construct optimum portfolios that meet the return aims and risk budgets of our clients.
Each strategy (representing a distinct portfolio of assets managed on behalf of one or more clients) is managed by a nominated Investment Committee. Each Investment Committee will comprise no less than two and no more than four members of the team (determined on a case by case basis).
Over several years key team members have developed a simple process cycle for Investment Committee decision making which enables us to utilise the outputs of the research effort in the most efficient way in order to make timely and value creating portfolio decisions.
The portfolio is reviewed against a ranking of all investable infrastructure assets. The review includes the following elements:
Monitor performance of individual assets and identify where assets are not performing as expected and require an Investment Committee review
Assess the current portfolio assets and positions against the potential additions to the portfolio, identify where there are potential trades that would increase returns whilst maintain the appropriate portfolio risk budget
Note that at this stage, any new asset research would be automatically included in the potential additions to the portfolio (provided it met the criteria). A new piece of research that identified a very attractive investment opportunity would, by definition, trigger reviews for potential inclusion in all eligible portfolios
Assess the portfolio exposures against the current macro environment and risks, identify any requirements for changing the risk exposures of the portfolio
Monitor feedback on portfolio performance and risk against objectives, identify any additional priorities for changes to the portfolio position
Where appropriate, identify issues or information to be shared with the relevant client