Multi-manager T Bailey is warning advisers of the dangers of viewing infrastructure as an asset class in its own right.
T Bailey’s equity income fund recently sold out of the listed PFI infrastructure company following a takeover by 12 BidCo. PFI shares were sold to BidCo at 308p, up from 148p when T Bailey initially invested in 2005.
Satellite holdings such as PFI are used in T Bailey equity income to boost the yield on a core portfolio of equity income funds, enabling the fund to beat its sector target of 110 per cent of the yield of the FTSE All Share index by 10 per cent as at March 31, 2007.
T Bailey was attracted to the yield on PFI infrastructure and held it because it expected some consolidation in the sector. But it says yield is only part of the infrastructure story as demand is coming from pension funds that regard the sector as an alternative asset class.
It says taking this to its logical extreme would result in utilities companies also being categorised as a separate asset class to equities, which happened previously with private equity.
Co-fund manager Jason Britton says: “A lot of people see infrastructure as an asset class in its own right but I am not sure we believe that.
“If you start viewing it as an asset class, utilities can also be seen as an asset class. Both have a high capital layout to earn an income, whether they are charging to use water or a toll road.
“It is dangerous when people start seeing sectors as separate asset classes outside the equities subset. We have seen that with private equity, which is just a different form of equity. The clue is in the title.”