Fund company makes a bet on infrastructure

PHILADELPHIA — A mutual fund company is taking a chance on the burgeoning market of infrastructure investments.

Kensington Investment Group Inc. of Orinda, Calif., expects to launch the Kensington Global Infrastructure Fund on Friday.

It will be the first open-ended mutual fund to give investors access to infrastructure assets once government financed and operated but now leased and operated by private entities.

It won’t be the last such fund, according to industry experts.

Infrastructure investments represent a great opportunity for investors, said Joel Beam, a portfolio manager with Kensington.

During the past 15 years, more than 100 countries have experienced privatization of state-owned enterprises, generating an estimated $735 billion, Mr. Beam said.

And the “privatization wave” is just catching on in the United States, he said.

The Chicago Skyway Toll Road and Dulles Greenway in Northern Virginia recently were privatized. And states such as New Jersey and Pennsylvania are debating whether to privatize their toll roads.

Financial advisers, however, said investors should be cautious.

“It’s an interesting idea,” James Kibler, president of Eldridge Financial Planning LLC in New York, said about a fund that invests in infrastructure assets. “But it sounds like an area where there is potential for political or regulatory risk.”

It’s a “fascinating” concept, said Armond Dinverno, an adviser and co-president of Balasa Dinverno & Foltz LLC in Itasca, Ill.

But “it’s early on in the life cycle” of the infrastructure investment market to really tell how such investments will perform, he said.

Such concerns, however, are overblown, Mr. Beam suggested.

It wouldn’t be in the best interests of governments to “upset the apple cart,” because privatization gives governments the means to finance the building and maintenance of their infrastructure, he said.

And although Kensington may be the first to bring out a mutual fund that invests in infrastructure investments, infrastructure long has attracted international private-equity investors and pension plan sponsors, who are drawn to the asset class for its competitive returns, moderate volatility, low correlation to other asset classes and growth potential, Mr. Beam said.

There is no doubt that infrastructure investments are attractive to institutional investors, said Jeff Tjornehoj, a Denver-based senior research analyst with Lipper Inc. of New York.

As a result, investors can expect to see other mutual fund companies follow Kensington in the development of funds that invest in infrastructure investments, he said.

But Mr. Tjornehoj doubts that such funds will ever become hugely popular. “Investors — they have a lot of non-correlated choices already,” he said. “Where would this fit?”

Investors have yet to really warm to the SDPR FTSE/Macquarie Global Infrastructure 100 (GII) exchange traded fund, which was launched by State Street Global Advisors of Boston on Jan. 31. The fund — designed to track the Macquarie Global Infrastructure 100 Index — has just $28 million in assets.

And two closed-end funds introduced more than a year ago by Macquarie Infrastructure Management (USA) Inc., a New York-based unit of Macquarie Bank Ltd. of Sydney, Australia — the $694 million Macquarie Global Infrastructure Total Return Fund Inc. (MGU) and the $244 million Macquarie First Trust Global Infrastructure Utilities Dividend and Income Fund (MFD) — also have failed to generate much interest.

Both closed-end funds were trading at discounts to their net asset value. That may be true, but since Kensington announced the pending launch of its global infrastructure fund last week, a lot of investors have expressed their interest in the fund, Mr. Beam said.

He added that the Kensington Global Infrastructure Fund is different from the ETF in that it will be an actively managed fund.

And mutual funds generally are more attractive to retail investors than closed-end funds, because investors don’t like having to deal with discounts and premiums, Mr. Beam said.

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