Explain the key characteristics of infrastructure as an investment
The idea
Infrastructure assets provide essential services, last for decades, and face high barriers to entry through natural monopoly, regulation or concession rights. Demand is fairly inelastic, and cash flows are often long-term and linked to inflation. Economic infrastructure covers transport, utilities, energy and communications. Social infrastructure covers schools, hospitals and similar public facilities, often under availability payments. Revenue can be regulated, contracted or demand-based, as with tolls, and assets are either greenfield (to be built) or brownfield (already operating). The main risks are regulatory and political, construction, demand, refinancing, and ESG. The trap is assuming all infrastructure is low risk: greenfield projects and GDP-sensitive assets such as airports and ports can behave much more like equity.
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- Explain the routes and vehicles for gaining infrastructure exposure and what each one is suited to
- Explain how an infrastructure project is financed and managed from development through operation, and what debt and equity each contribute
- Explain how infrastructure assets are investigated and valued
- Weigh risk and return across infrastructure strategies and relative to other assets within a strategic allocation