Lex Hall: Hi, I'm Lex Hall for Morningstar. The Lazard Global Listed Infrastructure Fund has just been upgraded to Gold and I'm joined today by Warryn Roberston. He's one of the managers who spearheads this fund and I thought I'd catch with Warryn to get his take on the outlook for infrastructure and the way he sees some risks and opportunities and what he's been up to.

G’day, Warryn.

Warryn Roberston: Good afternoon, Lex.

Hall: Easy question first up, I suppose. How have you sort of repositioned, if at all, since everything hit the fan?

Roberston: Yeah, everything did. Look, it's been interesting times. We've been cautioning our clients for probably 12 months if not longer that markets had reached some quite strange pricing situations, not just in infrastructure but broadly in most asset classes for that matter. And if I looked at the situation we were confronted with at the end of 2019 on the 31st of December and I roll forward to today, the value opportunities are pretty similar to be honest, but it's been a pretty rough and rugged ride in between.

There's two phases to this. There is the government shutdown, pandemic impacts, which have quite considerable implication for patronage risk or GDP-sensitive infrastructure assets usually. And what I mean by that is, that's airports, toll roads and to a lesser extent railroads. These assets usually in recessions are incredibly stable, consistent producers. But an economic recession is a very different scenario to a pandemic-driven shutdown. And I think you need to compare the two separately because our working thesis is that the pandemic will lead to an economic recession and that this will be not something that we will recover from like the commentary is talking about. Josh Frydenberg's decision today about the outlook for the budget, looks like everything is rosy by June next year. We're not seeing that and that's certainly not what we're building into our assumptions.

Hall: OK. Let's talk about toll roads and airports because you touched on that. There's been a marked decline obviously in the use of public transport, which is understandable. What are your thoughts on the impact on consumer-based toll road usage? Would it be a permanent structural increase do you think?

Roberston: I think it's a really good question, something that we've got to consider. And I think if you compare the three patronage risk style of assets that we're investing in our preferred infrastructure philosophy within our globalist infrastructure strategy, generally speaking, with economic downturns toll roads are some of the least affected assets and that's largely because their patronage is a function of employment demand and people going about their daily lives, i.e., people who are employed travelling from home to work. Now, in a pandemic, that changes and it changed quite dramatically as we know around the globe and we've seen the implications of that with some of our European toll road exposures and North American ones and our ones here in Australia.

Arguably, also, what covid-19 will lead to is a reassessment, I think, of travel from an airports and airlines-related perspective. The need and necessity for people like myself to travel domestically to do client updates I think now has been proven that we can do this at Zoom calls such as that what we're doing right now. And so, I think that is going to dampen that long-term growth rate beyond this recovery phase. And our working thesis and our hypothesis is that calendar '19 economic activity is unlikely to be seen again or return back to that level until the end of calendar '23. So, it's a downturn for covid in 2020, 2021, also some – because you had a – the first three months were effectively unaffected, you may see some year-on-year numbers that are down a little bit then. And then, following that if there's hopefully a vaccine and hopefully that's disseminated around the globe and distributed, we'll be able to see recoveries in '22 and – in fact at the end of '23 to where we were in 2019.

Hall: What about for airports? How much longer do you reckon they can survive a 90 per cent drop in air travel?

Roberston: Yeah, look, that's a good question, particularly for ones such as Sydney Airport where they did run a more leveraged balance sheet. They had certainly more gearing than many of their European counterparts or Mexican counterparts. So, we are cautious on the airports. Our direct airport exposure in the fund is 1.5 per cent. We had a position in Fraport which we think is the best placed of the European airports. But yeah, at the current pricing in the market we're not tempted to go into – we weren't tempted to participate in the Auckland Airport (AIA) raising. We're not tempted at this stage to look at Sydney Airport (SYD), although with its price drifting there's more value opportunities potentially there in time but not just today.

You go back through history, if you look at Zurich Airport when Swiss Air collapsed, you look at Brussels Airport with the collapse of Sabena and then Brussels Airlines, their landing charges were adjusted because of the decline in passenger numbers and that was a function of regulation. Sydney Airport and Auckland may want to return to that regulatory structure as a safeguard. And I think the market hasn't thought about those second-order effects of what covid will bring. And as a consequence, we're not seeing value opportunities arising in many of those airport stocks today.