Infrastructure is a popular investment theme among advisors and investors, but sustainable infrastructure is a particularly promising niche within that theme, according to Impax Asset Management.
Sustainable infrastructure is the investment into those services that are working toward creating a more sustainable economy. It has been gaining popularity in Europe and has the potential to do so in the United States. A major cause for the increased interest in sustainable infrastructure is a push by the international community to switch to more environmentally-friendly systems.
Significant government spending that will need to be committed to meet international sustainability goals by 2024, the year most countries plan to achieve their goals, said Christine Cappabianca, vice president and portfolio manager of Systematic Strategies at Impax.
The total spending gap is about $97 trillion according to the G20’s Global Initiative Hub. Of that total, there is a $380-680 billion gap for dealing with renewable energy and a $470 billion gap to upgrade to more greener transportation services along with several other spending gaps, Cappabianca said.
“The spending that needs to be done in the infrastructure space is really attractive,” she said. “The spending gap was the foundation for our investment case then we further expanded upon what was behind that gap and we see the need for more infrastructure, the need to replace infrastructure, and the need to substitute infrastructure.”
At least 130 countries have made some type of net zero commitment and nations are making significant changes to upgrade their infrastructures to reach that goal.
In addition, recent legislation such as the Inflation Reduction Act have allocated billions of dollars toward upgrades toward sustainable infrastructure, which spells significant opportunities for investors in the U.S.
Impax Asset Management, which is based in the United Kingdom but has a U.S. office in Portsmouth, N.H., has been promoting the benefits of sustainable infrastructure as an investment theme for years. The firm launched its $107 million Impax Global Sustainable Infrastructure Fund in 2021.
The Impax Global Sustainable Infrastructure Fund (PAXDX) invests about 30% of its assets in the industry with the next two largest portions going to sectors such as utilities and communications services. The investor class fees include a 0.65% management fee and a 0.25% 12b-1 fee, according to the firm.
The fund highlights those companies that conserve natural resources or enable or increases access to those resources. Those nature resources include clean energy, water, food and agriculture, healthcare, education, finance, transportation, and communications.
The Foresight Approach
Meanwhile, London-based Foresight Capital Management has focused primarily on the sustainability space in Europe and sees its potential in America.
“The U.S. is increasingly interested in more sustainability needs and more investors,” said Mark Brennan, a partner at Foresight Capital Management. “We’ve seen Europe mature in that regard and continue to mature over recent years and I think a similar wave is moving in the U.S.”
To that end, this month the firm announced a partnership with Cromwell Investment Advisors, which is based in Baltimore, to launch the Cromwell Foresight Global Sustainable Infrastructure Fund. It will mirror Foresight’s U.K.-launched FP Foresight Global Real Infrastructure Fund.
“All of the companies that we invest into and the position sizing we determine within the Cromwell fund will mirror what we already do with our UK/European Global Infrastructure strategies,” Brennan said.
The Cromwell Foresight Global Sustainable Infrastructure Fund (CFGIX) is a mutual fund that primarily follows the S&P Global Infrastructure Index, according to the fund literature. The product looks to invest in companies that own and operate underlying physical infrastructure assets.
Its fees include a 0.85% management fee along with a 0.25% 12b-1 fee.
Sustainable infrastructure is on the cusp of expansion in the United States and Brennan sees his relationship with Cromwell as a way to take advantage of that opportunity.
“Sustainable infrastructure is really at the forefront of where policy meets capital,” he said. “It’s looking to try to solve for these very long-term fundamental shifts in how we generate and consume energy and how we deliver healthcare.”
Thus far, Europe is leading the United States in efforts to develop a more sustainable infrastructure. To effectively capture that trend, the new Cromwell fund invests in domestic and foreign companies. It is a diversification that Brian Nelson, president at Cromwell Investment Advisors, said will bring positive returns to his clients.
“I think that it being global in nature and not being U.S. in nature is a real plus for investors in the U.S. to take advantage of opportunities that may be further advanced elsewhere than they are here in the states,” he said.
As an aspect of an overall portfolio, sustainable infrastructure can be counted on to remain steady regardless of the turbulence the markets experience, including the one it is currently going through.
Given the amount of money required to be invested and the nearly two decades needed to complete the work, investments into this space could be fairly consistent through any ups and downs in the markets.
“These are a great addition to any allocation model just for the diversity impact alone and I think it adds strength to an equity exposure overall,” Cappabianca said. “Despite the lower beta and income component, I think having those combined with growth flow, it really is an all-weather type of investment.”
Advisors are not as well-versed about sustainable infrastructure as they are with other investment themes. Nelson believes that will come with greater education.
“[Sustainable infrastructure] is growing but requires education to the advisors,” he said. “We have to provide education to the reps about that asset class as well as how to use it in a portfolio.”
J.P. Morgan Steps In
J.P. Morgan Asset Management has been active in the sustainability infrastructure space in a variety of capacities having launched the JPMorgan Sustainable Infrastructure ETF in September and the JPMorgan Sustainable Infrastructure Fund, which is currently based in Hong Kong.
JPMorgan Sustainable Infrastructure Fund (ACC) invests at least 70% into equity securities that are ideally placed to promote the establishment of a sustainable infrastructure as well as an inclusive economy. To qualify, these companies are not significantly damaging any of the environmental or social objectives while still maintaining good governance practices, the firm said.
The equity fund has $72.8 million in assets as of Jan 31 and charges 5.0% of the NAV for the initial charge and 1% p.a. for the management fee.
Ettie Philitas, head of Infrastructure Debt at J.P. Morgan Asset Management, said he has seen growing interest for this investment theme coming from institutional investors such as pensions, banks, insurers, endowments, and foundations.
Without detailing any of J.P. Morgan’s fund offerings, Philitas said that institutional investors are seeking exposure to sustainable infrastructure are looking to do it through segregated accounts and co-mingled vehicles including open and closed funds. The former is appealing due to its flexibility to allow the investor to set their own preferences for target return rates, currency, tenor, and timing for investment rebalancing, Philitas said.
Looking toward the future, he believes there will be a push toward more retail products as traditional investors look to gain access into this space
“We are seeing that the market is trending toward democratizing access to private and liquid assets and we believe that as we scale our platform and as we grow, that’s an area we are likely to focus on as well,” Philitas said.
He did not elaborate on J.P. Morgan’s future plans into the sustainable market space, but said the firm will continue to maintain a presence there for the foreseeable future.
“We’re active in this space and we’ll continue to be active as we ramp up our activities in the space,” Philitas said. “We are also going to look at emerging areas that we think offer opportunities.”
Those areas include battery storage, electric vehicle charging station infrastructure and solar power with more merchant exposure.