Global Listed Infrastructure Securities
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Global Listed Infrastructure Securities Global Listed Infrastructure Securities Document Transcript

  • Global Listed Infrastructure Securities Capability document
  • Contents Foreword from David Dixon 1 Opportunity set 12 About Colonial First State Global Asset Management 2 Global Listed Infrastructure Securities Fund breakdown 14 What is infrastructure? 4 Sustainability 16 Characteristics of infrastructure 6 Investment team 18 Advantages of global listed infrastructure 8 Find out more 20 Investment objective, philosophy and style 9 Contacts 20 Investment process 10 Colonial First State Global Asset Management their employees or directors give any warranty of reliability Colonial First State Global Asset Management is or accuracy nor accept any responsibility arising in any the consolidated asset management division of the other way including by reason of negligence for errors Commonwealth Bank of Australia group. It operates or omissions. This disclaimer is subject to any contrary through a number of different legal entities depending on provisions of the Trade Practices Act. the circumstances. Each of these entities is a member of the This document is not financial product advice and is Commonwealth Bank of Australia group, but no subsidiary intended to provide general information only. It is not a has the benefit of a general guarantee from the Bank. In this recommendation of any securities offered by Colonial Global Listed Infrastructure Securities capability document, First State Asset Management (Australia) Limited or any references to Colonial First State Global Asset Management other company or person. It should not be considered as are references to that division as a whole except where a comprehensive statement on any matter and should specific activities and functions are described, or are not be relied upon as such. It does not take into account attributed to specific entities. any investor’s individual objectives, financial situation or needs. Any investor accepting this information should DISCLAIMER consider whether the information is appropriate for them Colonial First State Asset Management (Australia) Limited and consider talking to a financial adviser before making ABN 89 114 194 311 AFSL 289 017 and Colonial First State an investment decision. Investments Limited ABN 98 002 348 352 AFSL 232 468 are Colonial First State Wholesale Global Listed Infrastructure wholly owned subsidiaries of the Commonwealth Bank Securities is offered by Colonial First State Investments of Australia ABN 48 123 123 124. Limited. Product Disclosure Statements (PDS) and Neither Commonwealth Bank of Australia nor its Information Memorandums (IM) for the funds issued by subsidiaries guarantees or in any way stands behind Colonial First State Investments Limited are available from the performance of, or the repayment of capital by the Colonial First State Global Asset Management. Investors Colonial First State Wholesale Global Listed Infrastructure should consider the relevant PDS or IM before making an Securities. Investments in the Colonial First State investment decision. Past performance should not be taken Wholesale Global Listed Infrastructure Securities are as an indication of future performance. not deposits or other liabilities of Commonwealth Bank Colonial First State Global Asset Management is the of Australia or its subsidiaries, and investment-type business name of Colonial First State Asset Management products are subject to investment risk, including delays (Australia) Limited. in repayment and loss of income and principal invested. © Colonial First State Asset Management (Australia) The information provided in this document is given in Limited 2009. good faith and is derived from sources believed to be accurate. Neither Colonial First State Asset Management All information is at 30 June 2009 unless otherwise stated. (Australia) Limited, any associated companies, nor any of
  • Foreword by David Dixon Colonial First State Global Asset Management is a leading fund manager, with extensive global investment experience across a wide range of asset classes and specialist industries. As a division of the Commonwealth Bank of Australia group, the team has the advantages of membership of one of Australia’s major banking groups. Our Global Listed Infrastructure capability was established in early 2007, with the aim to deliver capital growth and inflation-protected income by investing in a globally-diversified portfolio of listed infrastructure securities. Infrastructure describes the physical assets that provide essential services to society. The main areas of infrastructure we invest in are toll roads, airports, ports, rail, water, gas and electric utilities, energy pipelines and storage, and communication towers. These assets typically provide investors with the attractive characteristics of high barriers to entry, pricing power, sustainable growth and predictable cash flows. Global listed infrastructure has a low correlation with more traditional asset classes and can provide growth which is not dependent on economic cycles. Listed infrastructure demonstrated its defensive nature during the recent global financial crisis. It experienced lower volatility compared to the broader economic market while outperforming global equities. The demand for new infrastructure globally is immense. A 2007 report, titled Infrastructure to 2030 by the Organisation for Economic Co-operation and Development, estimated that developed countries will need to spend more than $70 trillion by 2030 just to maintain the current level of infrastructure productivity. Many governments have been under-investing in essential infrastructure for decades. A great number of assets built in the 1950s and 1960s, including interstate roads and nuclear generators, are coming to the end of their expected lives. Governments globally are increasingly turning to the private sector to fund this pent-up demand for infrastructure spending. The long-term outlook for the global listed infrastructure sector is positive, given the strong underlying demand for these essential services after many decades of government under-investment. The Global Listed Infrastructure Securities Fund is well positioned to take advantage of these opportunities with our pragmatic investment style, absolute return focus and specialised knowledge. The information contained within this booklet highlights Colonial First State Global Asset Management’s capabilities as a high-quality manager of listed infrastructure securities. David Dixon Chief Investment Officer 1
  • About Colonial First State Global Asset Management Colonial First State Global Asset Management is the consolidated asset management division of Commonwealth Bank of Australia, one of the largest financial institutions in Australia. Colonial First State Global Asset Management is Colonial First State Global Asset Management manages the consolidated asset management division of more than A$138 billion across a diverse range of asset Commonwealth Bank of Australia, one of the largest classes including Australian and global shares, short financial institutions in Australia. term investments, fixed interest and credit, property securities, direct property, global resources, unlisted Colonial First State Global Asset Management is infrastructure and listed infrastructure securities. Australia’s largest manager of Australian-sourced funds, employing more than 200 investment professionals Colonial First State Global Asset Management offers located in Sydney, London, Edinburgh, Singapore, tailored investment solutions for retail, wholesale and Hong Kong, new York, Auckland and Jakarta. Colonial institutional investors and aims to create wealth for its First State Global Asset Management is also represented investors by applying an active and disciplined approach in Beijing and Shenzhen through the First State Cinda to managing those investments. The business has made joint venture. a strong commitment to provide the necessary resources to ensure the long-term success of the Global Listed Infrastructure Securities offering. 2 GLOBAL LISTED InFrASTruCTurE SECurITIES CApABILITY DOCuMEnT
  • Commonwealth Bank of Australia Institutional Banking Institutional Banking Wealth International Retail Banking and Markets and Markets Management Financial Services Services Colonial First State CommInsure Colonial First State Global Asset Management Global Listed Infrastructure 3
  • What is infrastructure? Infrastructure describes the physical assets that provide essential services to society. Around the world, billions of people rely on infrastructure to live and do business. From the airports we travel through, the toll roads we drive on, to the water we drink – infrastructure assets are the backbone of any economy. The main areas of infrastructure we invest in are toll roads, airports, ports, rail, water, gas and electric utilities, energy pipelines and storage, and communication towers. Importantly, we do not invest in pure merchant power generators, shipping companies, hospitals, schools, airlines, construction or mining companies that some may class as infrastructure. The infrastructure sector covers a wide range of asset types which can be classified on the basis of the services provided or source of demand Toll roads Airports Ports Rail private toll roads are built private airports are generally A port is comprised of all rail is comprised of the and operated under long- operated under long-term the physical assets for the physical tracks and the term concession agreements leases and subject to some handling of containers and operation of bulk cargo from governments. The form of pricing regulation. bulk cargo to and from transportation and passenger toll road operator charges revenue from privately commercial vessels. Facilities trains. passenger trains have for use of the road, with owned airports is typically include berths, container regulated returns and bulk price increases usually well diversified with income gantry cranes, storage transportation is usually linked to inflation. Toll roads from aeronautical, retailing facilities and road and rail operated under long-term have historically exhibited and property services. This transport to the port. These contracts. This sector has strong volume growth income diversity can help assets are usually operated strong volume growth and and low price elasticity. cushion volatility arising under long-term leases from improving pricing power. from adverse external events port authorities and are affecting travel patterns. generally local monopolies or duopolies. 4 GLOBAL LISTED InFrASTruCTurE SECurITIES CApABILITY DOCuMEnT
  • Energy Communications Utilities Oil and gas storage and A communications network The utility value chain can pipelines are generally refers to the physical assets, include water services, owned by the private such as wireless towers and electricity generation and sector with returns satellites that are capable of gas production, transmission regulated to varying carrying communications. and distribution networks, degrees. These assets are Some assets have long-term storage and retailing. typically underpinned by customer contracts with Most networks are natural long-term, capacity-based built-in price escalations. regional monopolies so contracts which have no, prices are regulated to or very limited, volume allow a reasonable return or commodity price risk. on equity. 5
  • Characteristics of infrastructure Infrastructure assets have a number of unique investment characteristics which appeal to a broad range of investors, including: Sustainable growth Infrastructure assets have a sustainable growth profile which is relatively immune to economic cycles. In addition, many infrastructure assets have delivered growth well above nominal GDP over a number of decades. High barriers to entry In most cases, infrastructure assets are government legislated or natural monopoly providers of certain essential services. For example, electricity and gas distribution networks, toll road concessions with non-compete clauses or city airports with restricted flight paths. Pricing power Infrastructure assets tend to have the ability to consistently increase the price of their services over time. This can be due to several factors including tolls linked to inflation, real regulated returns and assets with high barriers to entry making competition difficult and limiting customer choice. Predictable cash flows These assets have an ability to generate cash flows which are highly predictable. This predictability is underpinned by infrastructure’s essential service nature, regulated returns, long-term contracts, limited cyclicality and lack of commodity price exposure. 6 GLOBAL LISTED InFrASTruCTurE SECurITIES CApABILITY DOCuMEnT
  • A port is comprised of all the physical assets for the handling of containers and bulk cargo on commercial vessels. Source: port of Tauranga. 7
  • Advantages of global listed infrastructure A portfolio of global listed infrastructure securities offers a number of advantages, including: Diversification A listed infrastructure fund should offer a portfolio of 30-60 infrastructure companies diversified by sector and country. This should reduce exposure to event risks (eg a terrorist attack on an airport), regulatory risks (eg harsh treatment of water utilities) or political risks (eg change in legislation). Liquidity The size of the listed infrastructure market is more than US$1,000 billion, so investors can have freedom to move in and out of positions. Access to iconic assets With many governments preferring IPOs to trade sales, the only way for investors to access many iconic infrastructure assets is via a listed fund. It is expected that most governments will not allow these vital infrastructure assets to become completely privately owned. Potential for balance sheet Many listed infrastructure companies have balance sheets that are sub-optimally optimisation geared. Over time, we are seeing listed infrastructure companies better utilising their balance sheets in order to improve returns to equity holders. This process drives share price appreciation within the listed infrastructure market. Transparency Listed funds provide daily pricing so investors know exactly what their portfolio is worth. Listed companies are typically more highly scrutinised by regulators, governments, unions and the media. They also tend to be conscious of environmental, social and governance issues. 8 GLOBAL LISTED InFrASTruCTurE SECurITIES CApABILITY DOCuMEnT
  • Investment objective, philosophy and style Global listed infrastructure securities offer a more liquid and diversified exposure to infrastructure than a portfolio of physical assets. Due to the emerging nature of this global sector, an Investment style experienced team that specialises in infrastructure is best The Fund employs an active, bottom-up security positioned to exploit market inefficiencies. The team’s selection process that aims to exploit market flagship fund, the Colonial First State Wholesale Global inefficiencies. Securities are targeted where the market Listed Infrastructure Securities Fund (the ‘Fund’), was underestimates the level and quality of sustainable established in 2007 to provide investors with a mix of free cash flows. Through this, the fund manager will strong capital growth and inflation-protected income. seek to earn excess returns by integrating a rigorous stock selection process – leading to high conviction Investment philosophy stock positions – with strict portfolio management The Fund invests in infrastructure investments risk controls. based on the following principles: The Fund invests in infrastructure, infrastructure-related Pragmatic and utility companies which control assets with We seek to exploit market inefficiencies by combining monopolistic characteristics. The assets should have attractive value with superior quality characteristics. high barriers to entry, strong pricing power, sustainable growth and predictable cash flow. The Fund targets Absolute companies with robust business models and strong Investment choices are assessed in absolute terms. management execution. Best investment ideas should create a portfolio, not a benchmark. Specialised Our specialised knowledge, combined with a globally consistent, disciplined investment process, will add value over the long term. Investment objective: Our flagship fund’s objective is to deliver capital growth and inflation-protected income by investing in a globally diversified portfolio of listed infrastructure and infrastructure-related securities. 9
  • Investment process The Fund has a six step investment process. 3. Valuation ranking model Securities are ranked on a consistent discounted cash flow valuation. Valuations are calculated using local currency cash flows and bond rates, but globally Portfolio consistent equity risk premiums and asset betas. construction Screening 4. Qualitative ranking model Each company is evaluated on 25 criteria that we believe influence performance, including: infrastructure characteristics, management, financial, regulation, sustainability and equity flows. Security Global Listed selection Infrastructure Fundamental 5. Security selection Securities portfolio research Valuation and quality ranking results are combined with fundamental analysis to determine a rating on each Peer review security ranging from ‘0’ for sell recommendations, to ‘3’ for high conviction buy recommendations. 6. Portfolio construction Qualitative ranking Valuation The portfolio is based on the team’s ratings. The ranking weighting of the security in the portfolio reflects the expected returns, the degree of the team’s conviction, and the correlation with other securities in the portfolio. These ratings clearly link the team security selection 1. Screening process with the construction of the portfolio to ensure Securities which have poor infrastructure characteristics, the portfolio contains the team’s high-conviction ideas. low liquidity or free float, low yield and growth are While the portfolio is constructed from the bottom up, screened out in the first step of the process. region and sector risks are carefully monitored by the 2. Fundamental research portfolio managers as a risk management overlay. An in-depth understanding of a company, the industry in which it operates and the company’s position within that industry is gained through fundamental research. Valuable insights are sought into the firm’s management, asset quality, financial position, strategic direction, regulatory environment and overall competitive landscape. This includes a consideration of environmental, social and governance issues for the firm. 10 GLOBAL LISTED InFrASTruCTurE SECurITIES CApABILITY DOCuMEnT
  • renewable generation forms a growing part of the generation portfolios of most integrated utilities. Source: E.On 11
  • Opportunity set The Fund’s opportunity set includes pure infrastructure sectors such as toll roads, airports, ports, energy, communications and utilities. The Fund’s opportunity set does not include infrastructure-related sectors, such as pure merchant power generators, shipping companies, hospitals, schools, airlines, construction or mining companies. Below are examples of assets in each of the sectors in which the Fund invests. Toll roads Airports Ports Energy Abertis Vienna Vopak Spectra Energy Atlantia Sydney Hamburger Hafen TransCanada 407 ETr Brussels port of Tauranga El paso Aprr paris Forth ports Enbridge M6 Toll Zurich Kamigumi pembina Citylink Signature China Merchants Kinder Morgan M2 Hills Motorway Atlantic Dp World Enterprise products 12 GLOBAL LISTED InFrASTruCTurE SECurITIES CApABILITY DOCuMEnT
  • Communications Utilities Rail American Tower E.On Central Japan railway Crown Castle GDFSuez East Japan railway SBA Communications national Grid norfolk Southern SES Global Enagas union pacific Eutelsat Southern Company Burlington northern Duke Energy CSX California Water Groupe Eurotunnel Genese & Wyoming 13
  • Global Listed Infrastructure Securities Fund breakdown Fund weights by sector Fund weights by country I Integrated Elec/Gas 21.0% I United States 31.0% I Roads 18.0% I France 18.0% I Ports 14.0% I Japan 10.0% I Regulated Elec/Gas 12.0% I Britain 8.0% I Communications 12.0% I Spain 7.0% I Rail 9.0% I Germany 6% I Airports 8.0% I Netherlands 5.0% I Energy pipelines 4.0% I Australia 5.0% I Water 3.0% I Italy 3.0% I Cash 1.0% I Switzerland 3.0% I Canada 2.0% I Austria 2.0% I Hong Kong 2.0% I New Zealand 1.0% I Cash 1.0% I Portugal 0.0% Figures are at 30 September 2009. Figures may not sum to 100 due to rounding. CFS GLIS Performance vs Benchmark 8% 6% 4% 2% 0% -2% -4% Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Source: CFS GAM, uBS 50/50 Global Infrastructure & utilities 50-50 Index as at 30 September 2009. 14 GLOBAL LISTED InFrASTruCTurE SECurITIES CApABILITY DOCuMEnT
  • Communications infrastructure refers to the physical assets of communications such as broadcast towers and satellites. Source: Abertis. 15
  • Sustainability Environmental, social and governance (ESG) issues are fundamental to infrastructure companies, given they have significant service obligations and moral accountability to the communities in which they operate. The Global Listed Infrastructure Securities team incorporates ESG accountability into its investment process. Companies are rated on ESG using historical track records, management key performance indicators and external surveys. Colonial First State Global Asset Management is – the dominant shareholders and protection a signatory to the united nations principles for of minority interests responsible Investment and subscribes to a global – the board composition database of 2,000 companies researched by Innovest – total shareholder returns and return on investment Strategic Value Advisors. as management incentive targets, and Environment – a long history of transparency and financial disclosure. Key environmental issues for consideration include: External research tools – the historic environmental safety record As part of its ongoing commitment to integrate ESG – how companies have dealt with past considerations into its investment processes, the Global environmental problems Listed Infrastructure Securities team engages third – a good history of operations in sensitive wilderness party research providers and accesses high-quality ESG areas, and research. The following are some of the external research – public leadership on environmental issues. tools the team employs. Environmental research Social Innovest Strategic Value Advisors, Dow Jones Key social issues for consideration include: Sustainability Index, Davos 100 Most Sustainable – the strength of community, customer and supplier Companies, The united nations Global Compact. relationships Social research – employee safety and inclusion in management’s key Innovest Strategic Value Advisors, The united nations performance indicators Global Compact, Corporate responsibility Officer (CrO) – an understanding of the companies’ internal culture ‘100 Best Corporate Citizens’, American Customer – sensitivity when dealing with indigenous Satisfaction Index, J.D. power Customer Surveys. populations, and Governance research – display of public leadership on social issues. ISS’ Corporate Governance Quotient, Governance Matrix International, Audit Integrity’s Most Trustworthy Governance Companies, Innovest Strategic Value Advisors, Corporate – Key governance issues for consideration include: responsibility Officer (CrO) ‘100 Best Corporate Citizens’, – the degree of political interference, especially where GlassLewis. government is a major shareholder – the accountability of externally managed vehicles and related party transactions 16 GLOBAL LISTED InFrASTruCTurE SECurITIES CApABILITY DOCuMEnT
  • revenue from privately owned airports is typically well diversified with income from aeronautical, retailing and property services. Source: Macquarie Airports. 17
  • Investment team Peter Meany Andrew Greenup Peter Meany Andrew Greenup Head of Global Infrastructure Securities Portfolio Manager peter joined Colonial First State Global Asset Andrew joined Colonial First State Global Asset Management in January 2007 as Head of Global Listed Management in July 2005 as a senior analyst in the Infrastructure Securities. peter brings more than 10 years’ Core Australian Equities team. Since then, Andrew has experience in the infrastructure and utilities sectors. prior analysed five industry sectors as well as being a back-up to joining Colonial First State Global Asset Management, portfolio Manager. prior to this, Andrew worked at Allianz peter was responsible for research coverage in these Global Investors as a senior analyst in Australian equities. sectors at Credit Suisse Equities (Australia). He received Before funds management, Andrew worked at Credit top rankings in a number of industry surveys and was Suisse First Boston as an equities analyst and AnZ Bank involved in a number of company defining corporate as a credit analyst. transactions. prior to Credit Suisse, peter was an analyst Andrew holds a Bachelor of Business (First Class Honours) at Macquarie Equities when the infrastructure sector from the Queensland university of Technology (QuT) and was in its infancy. was awarded the QuT university medal. peter holds a Bachelor of Economics (Finance) from He has completed the Graduate Diploma in Applied Macquarie university. Finance and Investment from the Financial Services Institute of Australasia. Andrew is the Global Listed Infrastructure Securities team’s representative on the Colonial First State Global Asset Management united nations principles for responsible Investment implementation committee and leads the team’s approach to ESG investment considerations. 18 GLOBAL LISTED InFrASTruCTurE SECurITIES CApABILITY DOCuMEnT
  • Rebecca Sherlock Edmund Leung Rebecca Sherlock Edmund Leung Senior Analyst Analyst rebecca joined Colonial First State Global Asset Edmund joined the Global Listed Infrastructure team as Management in April 2008 as the Senior Analyst in the an Analyst in February 2009. His responsibilities include Global Listed Infrastructure Securities team. rebecca’s stock coverage, involving meetings with management, primary focus is conducting detailed stock analysis, producing detailed financial models, qualitative reviews including financial modelling, qualitative reviews, and the presentation of stock ideas to the team. report writing and presentation of stock ideas. Edmund initially joined Colonial First State Global Asset prior to joining Colonial First State Global Asset Management in January 2007. His investment experience Management, rebecca worked for Ernst & Young over this time included smaller companies analysis Transaction Advisory Services. She was responsible with the Asia-pacific/Global Emerging Markets team in for financial modelling, business case preparation, Hong Kong and credit analysis for a number of sectors valuation analysis and bid price advice. with the Global Fixed Interest and Credit team. prior to joining Colonial First State Global Asset Management, rebecca holds a Bachelor of Science in Mathematics Edmund was an Actuarial Analyst at Aviva Australia – First Class from Sheffield university and is also a conducting financial modelling and analysis of wealth Chartered Accountant with the Institute of Chartered management products. Accountants in the united Kingdom and Wales. Edmund holds a Bachelor of Commerce (Hons) from the university of Melbourne and has passed all three levels of the CFA program. Where appropriate, the Global Listed Infrastructure Securities team also utilises the input and expertise from other investment teams within Colonial First State Global Asset Management, including unlisted Infrastructure, Global resources and Global Equities. 19
  • Find out more The purpose of this information booklet is to provide a brief overview of the Global Listed Infrastructure Securities business of Colonial First State Global Asset Management. Further information about our business, our practices and our policies can be found on the Colonial First State Global Asset Management website, cfsgam.com.au. Contacts Joanna Davison Liz Krajewski regional Managing Director Australia and new Zealand Head of Institutional relationship Management phone: +61 2 9303 7007 phone: +61 2 9303 2927 Email: jdavison@colonialfirststate.com.au Email: lkrajewski@colonialfirststate.com.au Peter Meany Rebecca Sherlock Head of Global Infrastructure Securities Senior Analyst phone: +61 2 9303 2456 phone: +61 2 9303 2655 Email: pmeany@colonialfirststate.com.au Email: rsherlock@colonialfirststate.com.au Andrew Greenup Edmund Leung portfolio Manager Analyst phone: +61 2 9303 6720 phone: +61 2 9303 6618 Email: agreenup@colonialfirststate.com.au Email: eleung@colonialfirststate.com.au 20 GLOBAL LISTED InFrASTruCTurE SECurITIES CApABILITY DOCuMEnT
  • Source: union pacific Corporation.
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