Canadian Investment Review

A Very Short Guide to Infrastructure Investing

Written by Ashby Monk on Friday, April 1st, 2011 at 11:56 am

1267134_confederation_bridgeLong time readers of this blog may have been doing a bit of head scratching lately over my sudden predilection to write about infrastructure investments. Well, I think the following headline from this morning’s IPE explains my interest and motivation pretty nicely: “Sovereign wealth funds flock to infrastructure.” In short, SWFs are increasingly keen on this asset class, which means I am too.

Accordingly, I thought I’d offer a quick primer; tell you what sort of returns and risks SWFs are exposing themselves to with infrastructure. In order to make my job easier, however, I’m just going to crib from George Inderst of the OECD. He has a new paper entitled “Public and private financing of infrastructure: Evolution and economics of private infrastructure finance.” It offers a useful framework for understanding all of the considerations of a commercial infrastructure investment.

First, here are the things that separate infrastructure assets from other assets:

Second, here is the value proposition:

Finally, here are the many risks that need to be managed:

The risks will undoubtedly vary according to how the fund accesses infrastructure. The risks facing a fund investing through a listed product will be far different than the risks for a direct investor. Anyway, there you have it: SWFs & Infrastructure 101. Class dismissed.

This post originally appeared on the Oxford SWF Project website.

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