Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 80

Listed versus unlisted infrastructure

There are key differences between investing in exchange-listed infrastructure securities versus unlisted infrastructure assets. These differences have important implications for investors and give rise to some commonly-held misconceptions.

The value of a typical infrastructure asset, or any long-dated asset, is determined by just two factors:

  • The cashflow forecast to be generated by the asset.
  • The risks associated with those cashflows actually materialising.

For an investor, the value of any asset is also impacted by the factors that stand between them and the cashflow generated by that asset. In relation to collective investment vehicles, there are three main factors:

  • Leakage of cashflows to the asset’s controlling entity, e.g. fees paid to a fund manager.
  • Reinvestment of the asset’s cashflows in the capital stock, e.g. for an airport, the use of asset cashflows to fund expansionary capital expenditure.
  • The use of cashflows by the controlling entity to acquire other assets, e.g. a fund investing in unlisted infrastructure assets acquiring another asset.

A common misconception is that a listed infrastructure investment is more risky than an identical unlisted investment because of the inherent volatility in the former’s daily pricing. This view is both disingenuous and incorrect, as it confuses volatility in pricing with the volatility in cashflow. While some investors are attracted to the apparent comfort of a quarterly (or worse semi-annual) valuation of their unlisted assets, this ignores day-to-day developments.

Leaving aside the illusory benefit of not being subject to daily pricing, one would expect that a long-term investor might gain an advantage by investing in an unlisted infrastructure fund. In theory, the assets owned by such a fund should be cheaper than their listed equivalents as it is generally accepted that investors are prepared to pay a premium to have the ability to buy or sell an asset at any time. Indeed, it is somewhat counterintuitive to think that an inability to buy or sell an asset reduces the risks associated with it. Despite this, overwhelming evidence suggests that the imbalance between demand from funds looking to invest in unlisted infrastructure and supply of appropriate investment opportunities has led to the opposite being true.

For instance, the following graph, showing the ratio of various entities’ Enterprise Values to their Regulated Asset Bases (RAB), which can be thought of as their net tangible assets, describes the history of utility acquisitions in the UK over the last decade. Each dot represents a deal done in the unlisted market, while the continuous lines show the equivalent trading multiples of the only two regulated utilities still trading at the end of the period in question:


Source: Magellan

Regulated assets in the UK are allowed to earn a return on their RAB. The regulatory regime in the UK is highly developed and utilities generally earn a small premium to the underlying cost of capital. Consequently, one would expect that the fair value of these utilities would be at a small premium to their RAB, which is indeed where we typically observe the listed assets to trade. However, the graph clearly shows a consistent pattern - unlisted asset transactions taking place at a 30% premium to underlying RAB. Note the rise and fall of Severn Trent’s share price in 2013, when news of a potential, but ultimately unforthcoming, takeover was made public.

The benefits of listed infrastructure funds

We believe that listed infrastructure assets benefit in comparison with unlisted assets:

  • Listed infrastructure assets have been, and remain, cheaper than their unlisted equivalents.
  • Fees charged by listed infrastructure funds are lower than those charged by unlisted infrastructure funds. Given that the infrastructure sector, when properly defined, should only provide modest, high single-digit returns over time, the difference in fees can be very meaningful.
  • The listed market offers a significantly increased opportunity set.
  • Daily liquidity allows investors to utilise more effective dynamic asset allocation, particularly in rapidly changing macroeconomic circumstances.
  • Listed assets are able to provide greater diversity of asset exposures due to investment size limitations. This can be particularly important when a substantial proportion of an unlisted infrastructure fund is exposed to a single regulated asset (and is therefore heavily exposed to a potentially unfavourable regulatory decision at some time in the future).
  • Regulated utilities, which make up the majority of the infrastructure investment universe, have little opportunity for the sort of value creation normally expected in private equity vehicles. This is because regulators generally do not allow such businesses to generate high levels of excess returns. As a result, it is favourable to achieve as cost-effective an exposure to the asset class as possible, i.e. through listed assets, as opposed to unlisted assets.
  • Better transparency, given the strict conditions for disclosure imposed on listed entities.

There are, however, advantages in investing directly in unlisted infrastructure assets for certain institutional investors, i.e. owning positions in those assets directly on their books rather than through the medium of a fund managed by a third party. In particular, owning a large position in an asset directly reduces agency risk (the risk that the investor will not enjoy the full benefits of the asset’s cashflows). However, realistically speaking, only very large investment institutions with specialised internal infrastructure teams can expect to be successful when competing for such assets. Only a relatively small number of investment institutions globally would be adequately resourced for such an endeavour.

Conclusion

Appropriately diversified exposure to the infrastructure sector, when conservatively defined, should provide investors with a return of inflation plus 5-6% before fees. Such a return may be earned through exposure to either listed or unlisted infrastructure assets. However, the listed market offers investors superior post-fee return prospects, particularly given current and foreseeable market conditions.

 

Gerald Stack is Chairman of the Investment Committee and Head of Research at Magellan Financial Group and Portfolio Manager of the Magellan Infrastructure Fund. He has extensive experience in the management of listed and unlisted debt, equity and hybrid assets on a global basis. This material has been prepared by Magellan Asset Management Limited for general information purposes only and must not be construed as investment advice. It does not take into account your investment objectives, financial situation or particular needs.

 

  •   19 September 2014
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

8 benefits of listed over unlisted infrastructure

Why infrastructure stocks can withstand higher interest rates

Don’t forget the yield

banner

Most viewed in recent weeks

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Noel Whittaker’s take on the budget

Marketed as a fix for inequality and housing affordability, the latest budget instead delivers a tangle of tax changes that leave everyday Australians worse off.

Australia has no death duties. Technically.

Australia may not levy formal death duties, but a growing web of tax measures is quietly shaping what wealth passes between generations. Now, the 2026 budget adds another layer.

Lithium's rally is real this time – but no-one trusts it

The lithium rally mirrors the early-2010s tech stock surge, with demand set to double by 2030. Supply has been slow to respond, creating a market deficit for future tech like humanoid robotics and solid-state batteries.

Welcome to Firstlinks Edition 662 with weekend update

The debate over the budget is increasingly shaped by frustration and perceptions of unfairness, rather than clear-eyed assessment of policy outcomes.

Two months into retirement

A retirement researcher's take on retirement and her focus on each of her six resource buckets to stay engaged during the transition and beyond.

Latest Updates

Are the government’s CGT changes better for young investors?

New CGT rules promise fairness, but could young investors lose out? A practical scenario reveals how changes impact deposit goals, investment choices, and long-term wealth building for the next generation.

Retirement

How to minimise tax with a will

Inheritance tax implications in Australia may surprise some, as poor estate planning without proper wills or trusts can lead to costly tax bills and delays for beneficiaries.

Investment strategies

AI can’t pick winning funds, but it can help you avoid losers

Machine learning has been touted a game changer investment management. But a new study overturns claims that AI can generate positive alpha in mutual funds. Here are some practical takeaways for investors.

Investment strategies

Inflation BIG picture: Boomers got lucky, next Gen not so much

A 150-year view shows inflation's upward bias, driven by shifting monetary regimes and war stocks. This marks an end to the low-inflation boom that enriched boomers and ushers in a higher-inflation era for younger investors.

Planning

Tax deductibility of financial advice improves affordability

A shrinking adviser workforce and rising costs are squeezing access to financial advice, just as demand surges. Expanded tax deductibility offers a modest but meaningful boost to affordability.

Retirement

Retirement in reality – 3 months in

A reflection on travel mishaps, smart decision-making, time pressures and rebuilding health habits. Three months in, here's how to navigate the surprising realities of life after work.

Taxation

Calculating the business cost of Australia’s new 'productivity tax'

Amid a national productivity crisis, new economic analysis finds the tax changes in the 2026 Federal Budget create Australia’s first-ever by design 'Productivity Tax', where young people will pay the biggest price.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.