When it comes to driving returns for clients, transport assets may be putting portfolios on the right track. But could this be derailed by trade and tariff volatility? Panellists at Asian Private Banker’s Alternatives in Focus 2025 event in Hong Kong explain.

For J.P Morgan Asset Management, the firm is seeing rising interest in transport assets from the private wealth channel, believing the fundamentals of investing in infrastructure critical to global trade will remain strong regardless of short-term tariff-induced market volatility.

“I never thought when we put this product in the market that it would be such a relevant solution for wealth channels,” said Anurag Agarwal, managing director, head of portfolio management at J.P. Morgan Asset Management.

Anurag Agarwal, J.P. Morgan AM

“Up until three years ago, 95% plus of the capital coming into the asset class was institutional. Today, 25% is coming from wealth channels and it’s growing,” Agarwal shared at Asian Private Banker’s Alternative Focus 2025.

He added it is the fastest-growing source of capital thanks to the role alternatives and core diversifying income strategies – particularly open-ended and evergreen strategies – are playing in portfolio construction.

“I think what we’ve been able to do is access the space a little bit earlier than others have and build a pretty meaningful position that allows us to now just keep diversifying and producing what are clearly attractive returns to our investors,” he said.

Wheel-y good returns?

Agarwal explained there are two bookends to infrastructure. One is ‘fixed infrastructure,’ and the other is what the asset manager calls ‘moving infrastructure,’ such as transport assets that are critical to global trade.

“In our case, in transport, for the entire life of the asset, I’m underwriting an asset to basically produce income for its entire useful life, and I’m depreciating that asset down to a book value of zero. So, in my underwriting approach, I am not taking residual value risk, so I’m literally not worrying about that. 90% plus of my return comes from cash and the income I generate from the leases,” he explained.

While the tariff and trade talks are critical, Agarwal argues long-term investing is not done on short-term thematic views. “The fundamentals of investing in critical core transport assets remain very, very strong over the next 30 to 50 years, which is what I think about when we make investment decisions,” he said.

Mandarin Oriental, Hong Kong – 25 February 2025. Panel discussion featuring Tony Shale, director of APB; Anurag Agarwal, J.P. Morgan Asset Management; and Winnie Liu, HSBC Global Private Banking.

Educating clients

The rising appetite from the private wealth channel in transport investing fits into the broader infrastructure investing momentum in recent years, identified by Asia’s top private banks.

HSBC Global Private Banking (HSBC GPB), for instance, launched its first open-ended infrastructure fund last year in response to the bank’s chief investment office call. “It resonated with clients very well, because, at that time, inflation was high, and also [being] ahead of the US elections, the market was volatile,” said Winnie Liu, head of alternative investments, Hong Kong at HSBC GPB.

“When I look across the private market fundraise last year, of course, private credit came on the top and then followed by private equity. However, infrastructure is very close to what we raised for the private equity strategies,” she said at the event.

When communicating the nature of infrastructure investments to clients, HSBC GPB adopts a ‘3D’ concept, which is short for digitalisation, decarbonisation and deglobalisation.

“Digitalisation is the easiest angle to engage with our clients during the conversations. There is a lot of news about AI (artificial intelligence) and also big data. So, it’s not difficult to talk to our clients that there is a need to build more facilities dedicated to the to the data centres and also our telecom communication towers,” Liu said.

Winnie Liu, HSBC GPB

Decarbonisation, Liu said, concerns the transition to the green economy and is important for a very small pool of clients who believe in long-term structural changes.

“Then de-globalisation, maybe we need a little bit more time to talk about. Basically, it’s about building more local bridges, roads and transit systems,” she said.

“All in all, infrastructure is real. It is something that is essential to clients, to investors’ lives, and is uncorrelated to the traditional assets […] Clients feel [they are] very safe assets because they have a stable income and they will distribute around 4-5% gross yield on a regular basis, and also that it is an inflation hedge,” Liu said.

Deployment risk

With an open-ended structure, liquidity risk is not much concern right now as clients are quite educated on this upfront, but Liu highlighted that the deployment risk is something the bank is monitoring.

“By nature, the structure itself and also the underlying assets – they are mismatched […] When the liquidity sleeve exceeds a certain level […] it will draw down the overall performance, and that is something we need to monitor, especially for infrastructure,” Liu said.

J.P. Morgan Asset Management’s Agarwal believes that the firm’s strategies could help mitigate this issue. “In open-ended funds, at least the way we go about it, it’s 100% drawdown upfront, so you’re not exposed to partial drawdown,” he said.

“Partial drawdown in a closed-ended fund, which has a 10 plus two-year term, even if it gives you a 15% plus internal rate of return (IRR), it results in a lower MOIC (multiple of invested capital) than 100% drawdown with a core plus income plus return profile.

“So, the real difference is my capital being drawn down upfront 100% because then your capital works for you for return […] You can’t eat IRR, but you can definitely eat multiple on invested capital. So, it’s all about MOIC in our world, not IRR,” he said.