Cashflow-driven investing (CDI) generates predictable, attractive cash flows to meet liabilities when they fall due.
Although a wide range of reliable, income generating assets can be included within a CDI strategy, discussions about which alternative asset classes to include are often limited to private debt, particularly infrastructure and real estate financing. At a stretch, some investors might also consider long income real estate, but unlevered infrastructure equity (i.e. assets acquired without leverage or third party borrowing at the asset level) is almost always ignored – and unfairly so.
We say ‘unfairly’ because high-quality unlevered infrastructure equity has the potential to deliver exactly what cashflow-driven investors – such as pension schemes – are seeking: low-risk, index-linked cash flows that are suitable for liability matching.
Infrastructure assets provide essential services. As the need for utilities, transport, energy and health facilities is ever-present, and as assets often operate under de facto monopolies or regulated regimes, the best assets can produce stable income flows throughout economic cycles. This makes them potential candidates for CDI.
We acquire assets without leverage or third party borrowing at asset-level in low-to-medium risk, income generating assets. The intention is to deliver attractive, regular cash flows with debt-like risk.