How does HICL define Core Infrastructure?

Core infrastructure is a distinct market segment, comprising essential infrastructure assets that deliver resilient cash flows from a protected market position.  By their nature, such infrastructure is often visible (located in the heart of communities), underpins economic activity and comprises long-life, capital intensive assets.

The significant growth of the infrastructure asset class since HICL’s IPO in 2006 has encouraged segmentation of the market around clear tiers of risk and return. Core Infrastructure is a term used to describe those assets that exhibit the most coveted infrastructure characteristics and, by definition, sit at the lower end of the risk spectrum. Since IPO, HICL’s Investment Policy, which continues to guide HICL’s acquisition strategy, has been aligned with the core infrastructure market.

The Company acting through its Investment Manager, InfraRed Capital Partners (“InfraRed”), systematically evaluates the infrastructure market using the following core infrastructure framework, with an overarching focus on assessing asset quality via three key tenets:

1. Cashflow quality: stable, predictable revenues and costs and hence returns to equity are protected by lower operational complexity;
2. Market positioning: limited competition, often due to structural protections or significant barriers to entry; and
3. Criticality: where assets sit at the heart of the community, are essential to the operation of public services and operate with a strong social licence

Core Infrastructure investors accept the vital role that these assets play in society and therefore the importance of a stakeholder-led approach to maximising long-term shareholder value. The three tenets of the framework work together to clearly define the core infrastructure equity market.

The key core infrastructure attributes (shown above) have been available to investors within the established market segments such as public-private partnerships (e.g. a hospital PPP), regulated assets (e.g. a water utility or energy networks) and demand-based assets (e.g. a mature toll road).

As the needs of societies and communities continue to evolve, so too will the infrastructure assets that support them. Increasingly the Board and InfraRed expect core infrastructure attributes to be exhibited by a number of sectors that support the modern economy, in particular essential assets associated with communications (e.g fibre) and those that support the transition to a low carbon economy (e.g. offshore transmission, electricity meters).

HICL continues to focus its investment activity within developed markets, principally the UK, Europe, North America and Australia and New Zealand.