How infrastructure can fit into your clients’ portfolios

This article is part of
Alternative Investments - September 2014

This area offers a wide range of risk profiles for potential investors. For instance, some infrastructure funds invest in projects from the construction phase while others choose to target those facilities which are already operational. Also, some infrastructure contracts are negotiated around the availability of the services while others are demand or usage based.

Investing in projects that are already operational such as schools, hospitals and power plants generates returns through profit from any fees paid for the service provided as well as from any Government subsidies associated with them.

Putting finance into an infrastructure project from the construction phase offers different benefits. While their earnings are restricted due to the lack of fees for the services which will be provided once the building is built and open for business, there is usually a deeper discount available to investors to make the investment more attractive where earnings are limited.

As well as traditional infrastructure investment opportunities, an environmental infrastructure sector is also developing. Environmental infrastructure investment focusses on renewable energy projects including solar, wind and waste-processing plants.

The longevity of such projects should be secure, given the growing appetite for renewable energy sources. The stability of the returns associated with such investments are still being assessed, however, as the renewable energy industry is still in its infancy, relative to other sectors.

Infrastructure represents a good investment option to help build a diverse portfolio and can provide a reliable, long-term return. While it may not offer the highest return, the risk-reward trade-off is attractive. Meanwhile, infrastructure investment responds differently from more traditional asset classes to economic and financial shocks, thus providing diversification benefits.

Stephanie Carbonneil is Senior Investment Manager at Architas