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Subject 8. Infrastructure PDF Download

The assets underlying infrastructure investments are real, capital intensive, and long lived. These assets are intended for public use, and they provide essential services. Examples include airports, health care facilities, and power plants.

Investment characteristics:
  1. Significant capital investment. Funding is often done on a public-private partnership basis.
  2. Monopolistic and regulated. Both 1 and 2 create high barriers to entry.
  3. Highly leveraged financial structure, which enhances investor returns.
  4. Stable long-term cash flows (adjust for economic growth and inflation).
  5. Long operational lives.
  6. Strategically important: this is most likely valuable to investors aiming to sell newly constructed assets to the government.
  7. Defined risks: investment risks are clear and well defined.

Infrastructure investments may be categorized on the basis of the underlying assets.

  • Economic infrastructure assets include transportation assets, information and communication technology assets, and utility and energy assets.
  • Social infrastructure assets are directed toward human activities and include such assets as educational, health care, social housing, and correctional facilities, with the focus on providing, operating, and maintaining the asset infrastructure.

Infrastructure investments may also be categorized by the underlying asset's stage of development. Investing in infrastructure assets that are to be constructed is generally referred to as greenfield investment. Investing in existing infrastructure assets may be referred to as brownfield investment.

Infrastructure investments may also be categorized by location (local, regional, national) associated with the government entity directly involved with the assets.

There are different forms of infrastructure investments, such as direct investment, infrastructure funds and EFTs, and company shares.

Compared with other investments, infrastructure investments typically have lower expected risk, more stable cash flows and lower risk level. Risks tend to be well defined. They may match the longer-term liability structure of certain investors.

Learning Outcome Statements

h. explain investment characteristics of infrastructure;

CFA® 2022 Level I Curriculum, Volume 5, Module 47

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