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Can costly infrastructure help investors dig for returns?

Can costly infrastructure help investors dig for returns?

Under our streets and in the press, you can’t move for infrastructure.

The building of Crossrail, scheduled to be ready in 2019,  disrupts Londoners’ lives on a daily basis. At the same time, the proposed High Speed 2 (HS2) railway link generates reams of newsprint on whether it is worth the £50 billion (and rising) cost.

And now we have the 2050 London Infrastructure Plan, a £1.3 trillion melange of airports, river crossings and railway lines which  Mayor Boris Johnson says is needed to help London keep pace with its booming population.

So what’s in it for investors? Quite a lot really and not just here. Infrastructure is a global game, hoovering up masses of public and private finance from Mumbai to Melbourne and Bangkok to Beijing as fast-expanding cities in emerging markets  cities suck in more and  people from the land.

Returns from infrastructure investment portfolios have been generally robust in recent years. The iShares Global Infrastructure ETF has risen 43% and 65% over the past three and five years respectively.*

Fund group Aberdeen Asset Management has launched and obtained seeding for its fifth infrastructure fund. The Aberdeen Global Infrastructure II LP received US$168m in initial commitments from a range of Asian institutional investors.

The fund will invest in all major sectors of social and economic infrastructure including such areas as health, education, social housing, government accommodation, roads, bridges, rail, rolling stock and waste management.

The business has highlighted that outside Europe, the potential for investment in infrastructure is very promising with the US on the up, and Australia still proving to be one of the most active markets.

The UK’s largest investment trust in the sector, the £1.53bn HICL Infrastructure, has returned 71% over the past five years. It has also looked to Australia, where it recently acquired a 5.8% stake in the AquaSure PPP (Public Private Partnership) project in Melbourne for £47m, marking the trust’s first investment in the country.

*To 6 August, 2014, source iShares

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