JPMorgan's tasty new infrastructure investment trust comes to market
JPMorgan’s new investment trust offers a play on real assets ranging from global infrastructure to Asian property.
This hardly seems an ideal time to launch a new investment trust on the London market. But if there is a fund that can pull off a blockbuster launch this late in the cycle, then it will almost certainly be one offering exposure to income-producing real assets.
Defying the volatile market
Over the past year, listed funds that have built a strong presence in everything from commercial real estate to renewables infrastructure have managed to raise more money from investors. Successful new fund launches are much less common, although we have seen some new entrants raise decent amounts of money, including the Gresham House Energy Storage fund and the US Solar fund. In the next few weeks they may be joined by a real heavyweight in this sector: JPMorgan. It plans to list a new British trust, Global Core Real Assets, with the proposed ticker of JARA.
Assuming this new trust pulls in a minimum of £100m, it will aim to generate an annual yield of between 4% and 6% over the long term, alongside a target total real return including income of between 7% and 9% per year.
The fund is also building on an existing platform of private funds run by JPMorgan out of something called the Global Alternative Group. This in-house outfit currently runs around $145bn of money across a wide spectrum of private real assets in the global infrastructure, global transportation and US and Asia Pacific real-estate sectors, which together will make up around 80% of the portfolio. Any money raised by the investment trust will be put to work by the Alternative Group.
A different league
This immediately puts this proposed new fund in an entirely different category from its existing peers. JPMorgan is one of the biggest banks in the world with access to its own real assets and related expertise. This isn't a small outfit desperately trying to gain a foothold in the sector.
But that isn't the only difference from other existing funds in this sector. The trust will invest across four key areas. Between 10% and 30% will be invested in global transportation assets that range from ships to port facilities; JPMorgan is already in the top 1% of ship owners globally. Another 10%-30% will be invested in infrastructure, both traditional and renewable (JPMorgan already owns 1,000 wind turbines). The third key pillar will be global real estate, ranging from residential the bank already owns more than 49,000 flats to traditional commercial property.
The money in these three sectors will be supplemented by listed real estate investment trusts (Reits), mainly in America. So we have a multi- strategy fund of mostly private assets, which encompasses everything from residential flats to ships. Nothing quite as diversified is currently on offer in the UK market.
A huge global footprint
And there's one other key differentiator: geographical diversity. More than 95% of the fund will be invested abroad, with the US the largest segment, closely followed by Asia Pacific assets (over a quarter of the proposed fund). Australian-owned assets will feature prominently. There are very few funds that offer such strong foreign exposure.
As for the likely returns, the fund's marketing is highlighting the alternative characteristics of its underlying asset base, with income probably the largest and certainly most dependable component of total returns. Still, property and infrastructure funds have been caught out in recent years by political risk (in the infrastructure segment) and concerns about the late stage of the commercial real-estate cycle.
Remember too that listed funds are affected by the general market's mood. You can be managing as alternative an asset as you want, but if the market sells off viciously, there's a good chance your share price will get caught up in the sell-off. Nevertheless, I think a long-term return target of around 8% is plausible.
A research note on the existing private funds within the JPMorgan platform suggest that they have returned an average of around 10%-11% over the last decade, while the underlying income yield from these private funds was about 5% per annum last year.
JPMorgan has also been quite canny and pitched management fees at about the market average fees will be 0.98% at most, falling to 0.91% if £500m is raised. So the ongoing charges figure, excluding performance fees, will probably be 1.2%-1.3%, compared with a sector average of 1.24%. The slight catch is that there are also performance fees on two of the underlying strategies. On the infrastructure investment, the fee is 15% of the returns over a 7% hurdle on a rolling three-year basis, capped at a 13.5% return. On the transportation segment, the fee is the same, but with no cap.
On balance, however, I think this new trust will prove appealing to income investors. It is globally diversified and offers exposure to new niches, such as Asian real estate and global transport assets. You can buy into existing property funds at tighter prices, with discounts on offer at many funds; then again, most infrastructure funds trade closer to a 6%-10% premium. So this may not the cheapest way to buy some of these assets, but it is simpler. The trust's initial public offering open and available to private investors on most platforms is set to close on 18 September.