MAY
12
2015

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COMMENTS

Build Your Portfolio With Infrastructure Investments

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 Link : http://www.investopedia.com/articles/mutualfund/07/infrastructure.asp

Investment in infrastructure provides many benefits including high returns, stability of returns, portfolio diversification, and inflation hedging.  Currently, there are four main avenues for investment in infrastructure:  Listed shares, listed funds, unlisted securities, and un-listed funds. While listed securities are the most accessible for all investors, there are very few infrastructure assets large enough to list shares on public exchanges.  Listed funds are by far the most popular with retail investors seeking to gain the benefits of having infrastructure; but these do not provide the full beneficial characteristics of infrastructure.  Infra funds are typically not made up of true infrastructure assets, but of companies in the infrastructure space such as construction, design, supply, and maintenance firms.  Furthermore, the high fund fees (1.5% to 2.5% of committed capital) associated with professional management and vetting investments, along with short fund durations, detract from the healthy returns and long-term stability of true infrastructure assets.  Additionally, infra funds are subject to market risk, manager risk, strategy drift, comparability, and liquidity risk.   Although direct investment in infra provides better economic returns and is a better model than funds due the reduction in fees, most investors don’t have access to direct investment and tend to approach the asset class through funds.    Most retail investors also don’t have the investment, engineering, tax and legal expertise to vet quality infra assets.  Additionally, infrastructure as a retail investment is hindered by the novelty of the asset class, lack of investor knowledge and experience, shortage of data, and unfamiliarity with investment vehicles.  Historically, direct investment in unlisted infra assets also required significant allocation for large chunks of securities which were restricted for resale causing limited liquidity.   Public-Private Partnerships provide opportunities for investors to gain the benefits of holding infrastructure securities.  The securities are issued by the Special Purpose Companies (SPC’s) that are formed to execute the development of a single P3 development.  The SPC uses project financing techniques to establish a credit rating from one of the ratings agencies, and then issues  securities (equity, mezzanine, and debt) according to the project’s capital needs.  Investors  seeking to diversify their portfolio with long-term, stable, and inflation hedged returns that are un-correlated with the larger market can then purchase securities of the SPC’s.   Unfortunately most investors do not have access to investment in infrastructure assets.  Other than listed infrastructure funds, which do not provide the same benefits as direct infrastructure investment, there are really no opportunities for direct investment for investors other than institutional investors (Private Equity fund, pension fund, insurance company, etc.).  Fortunately, InfraShares leverages recent developments in SEC regulations and technology to allow for direct investment in P3s that serve your community; providing you the opportunity for financial and social return on your investment.

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