Asset owners are understandably concerned about the outlook for travel industry assets, such as airlines and airports, which have suffered a catastrophic impact from Covid-19 lockdowns since March. And some are calling for more openness from fund managers about the severity of the hit to such investments.

While encouraging signs have emerged for the sector some eight months into the outbreak, there is widespread scepticism about the prospects for certain infrastructure assets even after the crisis has receded completely. 

“It's an irony to say what's risky and what's not risky at this stage because after Covid-19, the assets that we thought were relatively risk-free are becoming some of the riskier assets,” said Eoh Jiroo, head of infrastructure and real assets investments at Korea's ABL Life.

Eoh Jiroo, ABL Life

The Seoul-based insurer has around 20% of its $20 billion portfolio allocated to real assets and is looking to invest more into this area, including via public-private partnership deals.

“Before Covid-19, we thought airports would be one of the best asset classes in the world because people were flying everywhere, but since Covid-19 erupted, nobody is moving,” said Eoh.

Infrastructure assets that he sees as risky include airports and some midstream projects – those spanning processing, storing and transporting of oil and natural gas – due to potential demand risks.

The pandemic has left the airline industry in a grave situation in its immediate aftermath. The world’s busiest airport, Atlanta’s Hartsfield-Jackson, had as of the end of March seen an 85% drop in passenger numbers and revenues having fallen 50% to 60%, UK newspaper The Guardian reported in April. And the International Air Transport Association told Bloomberg on July 28 the industry would likely not fully recover before 2024.

Ports, shipping and cruise holidays were among other areas to suffer badly during the height of the pandemic, although cargo volumes look to be rebounding, going by reports of rising freight rates.

With all this in mind, Eoh feels infrastructure fund managers should be as honest as possible about the effect of Covid-19 on their investments.

“We want to ask the managers to be more transparent," he said. "We all know it's not easy to say that the assets are in trouble and a significant portion of the revenue or distribution has disappeared over the past three or four months due to Covid-19."

Realistically, Eoh added, there may be very little an investor can do if it has substantial risk exposure. But he said managers could adopt a step-by-step problem-solving process and explain the situation to their clients, the issues involved and how long the assets could survive until the economy picks up.

Covid-19 has helped to distinguish the good managers from the standard managers and the more proactive ones are likely to be remembered for future investments, Eoh added.

ABL Life has, according to a March 2019 media report, invested into funds managed by Corsair Infrastructure Partners focusing on DP World Australia, which operates port terminals in Sydney, Melbourne, Brisbane and Fremantle. It reportedly did so alongside domestic peers Mirae Asset Life, Kyobo Life, Shinhan Life and Heungkuk Fire & Marine Insurance.

It's not the only Asian asset owner to have suffered some buyer's remorse. The Government Pension Investment Fund of Japan and Australia's TCorp (the New South Wales Treasury Corporation) reportedly acquired stakes in Brussels airport in January.

Ralph Berg
Ralph Berg

OVERDONE CONCERNS?

Despite the travel industry's woes, some investors are confident that concerns over the appeal of infrastructure may be overdone and that opportunities will emerge as the pandemic eases. 

One is Ralph Berg, the London-based global head of infrastructure at Ontario Municipal Employees' Retirement System. He has a relatively sanguine outlook on transportation assets over the long term.

“We will continue to need roads, ports and airports,” Berg told AsianInvestor. “I don’t think anybody believes that we won’t be flying again or we won’t be flying as much."

This is likely to lead to opportunities, he noted. Differences in expectations over how quickly the airline industry will recover will likely cause a widening of bid/ask spreads in respect to how debt and equity assets in the sector are valued. 

The C$109 billion ($83 billion) Canadian pension fund is aiming to increase its exposure to infrastructure, most notablly renewables, as well as public market assets in Asia. 

Others are also relatively bullish. Airports and airlines in fast developing economies in Asia, in particular, will be essential, argued Pulkit Sharma, New York-based head of real assets and alternative investment strategy and solutions at JP Morgan Asset Management, in a virtual media event about alternatives on August 18.