Investment Characteristics

From an investors’ perspective the infrastructure asset class provides appealing investment characteristics which evolve due to their physical and economic characteristics:

 

  • Stable and predictable cash flows: By nature infrastructure facilities exhibit steady demand with stable and predictable cash flow streams. In some cases income is regulated or backed by certain types of guaranteed uptake or purchase agreements

  • Long term predictable income streams: Implied by the long life span of infrastructure facilities. For basic infrastructure facilities operating costs are low compared to the initial investment and investment returns are dominated by yield. These features are attractive to investors seeking long-term, stable, yield dominated investments. In addition the revenue stream may be supported by "shadow tolls", government subsidies or other non-market interventions

  • Inflationary hedge: The income streams from regulated infrastructure facilities are often linked to inflation providing a natural inflation hedge against movements in market prices

  • Insensitive returns of investment: In particular with respect to fluctuations in business cycles, interest rates and stock market movements

  • High credit rating: Since infrastructure exhibits stable and predictable cash flows they usually have a comparatively high credit rating

  • Low correlation and low volatility: This arises from the fact that infrastructure exhibits unique investment characteristics which deviate fundamentally from traditional asset classes. In particular the inelastic and stable demand for the goods and services provided imply comparatively low volatility and correlation

 

 


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