In the weeks following the announcement of the EU referendum result, a number of high profile retail real estate funds announced that they were stopping redemptions as they witnessed an investor rush to cash.

Standard Life was the first to shut the gates on its £2.9 billion ($3.8 billion) UK Real Estate Fund on the 4 July 2016. A couple of days later, M&G Investments and Aviva Investors announced they did the same on their £4.4 billion and £1.8 billion UK property funds respectively. All three funds cited extraordinary market circumstances and reported alarming redemption levels as the main reasons for their decision.

Infrastructure could also have been expected to witness a similar trend due to its rather illiquid nature. However, a number of UK-listed funds reported an opposite trend. In the wake of Brexit, share prices have generally gone up across all listed infrastructure funds, as private and institutional investors seek shelter in what seems to be largely considered a safe asset class.

The attraction of infrastructure

Stephen Ellis, partner at listed debt-manager Gravis Capital Partners (GCP), confirms that infrastructure proved to be quite resilient in the new market scenario. “After Brexit, some market sectors (notably open-ended property funds) were badly affected while infrastructure seems to have been particularly resilient. At a time of uncertainty, investors are keen to seek shelter in income-generating assets like infrastructure funds,” he says.

GCP Infrastructure saw a small initial drop in price following the referendum result as it launched a fundraising on 4 July, but following the successful closing of that offering it has since recovered well.

“In general terms, it makes sense for debt investors to invest in infrastructure funds as they offer a significant yield pick-up over gilts – particularly post-Brexit when the 10 year gilt rate has fallen from around 1.25% to 0.75%. In the current market environment, infrastructure is an attractive investment destination both in terms of valuation and running yield, as investors slowly become willing to take on some moderate risk,” Ellis adds.

3i Investments’ managing partner and co-head Ben Loomes also says that the 3i fund reacted pretty well to Brexit. “The 3i Infrastructure fund had a successful capital raise recently and has a good level of liquidity and will continue to look at new investment opportunities. In general, we invest in assets with stable and long duration cash flows, and therefore in an uncertain macro-economic environment with potentially lower growth prospects, we have seen capital inflows from investors who are looking for more defensive assets,” he says.

Limited currency exposure

Loomes also points out that many pension funds have higher target allocations for the infrastructure sector than their actual allocations and are continuing to look to deploy capital in the sector. “It is also worth noting that the assets within the 3i Infrastructure fund’s portfolio are largely domestic in the countries in which they are based and the fund has a rolling exchange rate hedging programme for its euro-to-sterling currency exposure for its European assets,” he added.

A low correlation to GDP is one of the main factors highlighted by HICL’s partner Harry Seekings to explain the fund’s share price increase and general positive performance after Brexit.

“HICL has a very limited correlation to GDP so the element of uncertainty that surrounds the wider economy is not going to affect the fund’s revenues. HICL’s beta has been low for quite some time now and has been particularly low in 2016, which made the fund particularly resilient not only after Brexit but also after the equity market wobble at the beginning of the year. If investors are seeking yields while not taking on too much risk, infrastructure is a sensible choice,” he says.

HICL share price has seen a significant uptick since the referendum result was announced on 23 June. "Our shares are trading at £1.70 and the trend seems sustained. We have seen a similar movement in all listed infrastructure funds, as well as in the utilities space.

“We are not able to foresee whether interest rates will go down or not, but if they did both regulated utilities and infrastructure funds such as HICL may benefit from it,” Seekings concludes.