Infrastructure fund that gives option of diversification

Published on Friday 1 May 2009 21:33

THE HSBC Infrastructure Company Limited (HICL) offers investors the opportunity to further diversify their portfolios by providing exposure to social assets via private finance initiatives (PFI) and public private partnerships (PPP).

Tony Roper is the director of Infrastructure and is responsible for the day-to-day management of the portfolio, which currently comprises 28 assets including hospitals, schools and training centres.

The company was launched in March 2006 to fill a perceived gap in the market and Roper explained that, until then, most infrastructure investments were made by institutional investors in unlisted vehicles or by buying shares in Balfour Beatty or Carillion.

Roper added: "Some have bought HICL as they believe it gives bond-like returns, i.e. a long-term predictable steady yield. Charities like it as do some local authority pension funds looking for alternative investments to compliment their core portfolio."

Unlike traditional property investments, which can have break clauses in their rental agreements and the potential for void periods where there is no tenant, HICL has the benefit of a contract from the point of investment which means that the income will be received and be at least partially tied to the retail prices index (RPI) for the term of the investment.

HICL has a stated aim to grow the dividend to 7p a share by March 2013. Based on the dividend in 2008, this would appear to be realistic. However, Roper explained one potential threat: "As our income is linked to RPI, it depends on your view of inflation over the longer term. If you believe we are in for a prolonged period of deflation for a number of years, this could clearly affect our ability to grow the dividend."

At the end of 2008, HICL had net debt of 65.7 million with a five year revolving facility of 200m that is used to fund purchase opportunities.

"Investors won't give us cash in advance of a purchase and we don't like the idea of having spare cash on the balance sheet as this would put pressure on us to invest it quickly which does not lead to the best buying decisions," said Roper. "We prefer to gear up and then repay the debt from a further issue of shares as we did in 2008."

For more information on the HSBC Infrastructure Company call 020 7991 3798 or visit www.hicl.hsbc.com

• Barry O'Neill is a chartered financial planner with Thomson Shepherd Limited (incorporating Coggans Wood).