Institutional Investing in Infrastructure
June 1, 2014: Vol. 7, Number 6Buy For $175.00 Add to Cart
Tip the scales: Politics and the courts, as much as economic growth, can determine infrastructure investment performance
As the saying goes, there is no such thing as a free lunch. Not only do infrastructure assets typically offer lower levels of returns than other kinds of private equity investments, but they are also more often than not assets belonging to markets and sectors prone to becoming the playthings of politicians, especially in election years.
There might be a pony in here: P3 could help fill the infrastructure spending gap
The Highway Trust Fund is in peril of becoming insolvent if it goes unfunded with yet another impending impasse in the United States Congress. To put this in perspective, if this funding does not go through, a potential 112,000 infrastructure and 5,600 transit projects will be delayed or stop and could result in the loss of 700,000 construction jobs in the next year. Institutional investors should pay attention to this unfolding story because it may lead to opportunities in the U.S. P3 market.
Check your local listings: As prices in private infrastructure markets rise and political and regulatory uncertainties mount, listed infrastructure has caught investors attention
Institutional investors have voted with their capital in recent years, supporting the argument that infrastructure can offer attractive risk-adjusted returns, yield and diversification characteristics that are distinct even from other real assets. This acceptance of private infrastructure is driving additional interest in listed forms of infrastructure investing. But, similar to other big real asset classes such as real estate, this interest has lagged the private side of the market.