CAIA - 19 - Infrastructure as an Investment Flashcards
Infrastructure typically has the following characteristics:
- ___, ___assets with a ___ ___;
- Higher ___costs
- Low ___costs
- Supports ___.
Infrastructure typically has the following characteristics:
- Large, physical assets with a long life;
- Higher capital costs
- Low operating costs
- Supports society.
There are 3 approaches to classifying infrastructure:
- ___ party
- ___of pricing
- Role in ___
There are 3 approaches to classifying infrastructure:
- Paying party
- Regulation of pricing
- Role in economy
Unregulated pricing of infrastructure investments commonly occurs in the ___ sector.
Unregulated pricing of infrastructure investments commonly occurs in the energy sector.
The 2 ways to classify assets based on their role in the economy is:
- ___
- ___
The 2 ways to classify assets based on their role in the economy is:
1. economic
2. social
___ infrastructure assets are assets whose economic value is based on the revenue they produce.
Economic infrastructure assets are assets whose economic value is based on the revenue they produce.
___ infrastructure assets provide a service and do not need to generate revenue.
Social infrastructure assets provide a service and do not need to generate revenue.
Social infrastructure assets provided by the private sector are generally in the form of ___.
Social infrastructure assets provided by the private sector are generally in the form of PPPs.
Infrastructure investments needed to help the global economy reach its potential are expected to be around ___% of GDP by 2030.
Infrastructure investments needed to help the global economy reach its potential are expected to be around 3.5% of GDP by 2030.
___ ___is a financing of projects using long-term loans secured by the projects assets, with financing costs covered by the project’s cash flows.
Project finance is a financing of projects using long-term loans secured by the projects assets, with financing costs covered by the project’s cash flows.
In the U.S., several factors have driven increased private-sector participation in infrastructure:
- Funding ___
- ___of infrastructure for new investments
- Attempts to obtain private-sector ___and ___ ___
- Favorable ___ ___
- Availability of ___from private sources
In the U.S., several factors have driven increased private-sector participation in infrastructure:
- Funding shortfalls
- Divestitures of infrastructure for new investments
- Attempts to obtain private-sector management and technical expertise
- Favorable PPP legislation
- Availability of financing from private sources
3 characteristics drive an infrastructure assets risk/return profile:
- ___ of ___
- ___ ___
- ___scope
3 characteristics drive an infrastructure assets risk/return profile:
- Stage of maturity
- Geographic location
- Sector scope
Infrastructure assets can either be ___ or ___assets in terms of their stage of maturity.
Infrastructure assets can either be greenfield or brownfield assets in terms of their stage of maturity.
The greenfield phase is quite ___ and ___. It’s risks tend to be ___.
The greenfield phase is quite long and multifaceted. It’s risks tend to be high.
Risks of greenfield projects include:
- ___ and ___risks
- ___risks
- ___, ___and ___risks
Risks of greenfield projects include:
- Design and technological risks
- Construction risks
- Economic, legal and political risks
The primary risk for brownfield projects are:
- ___ risk
- ___and ___risk
The primary risk for brownfield projects are:
- Revenue risk
- Operational and maintenance risk
An investment would most likely not be made in an infrastructure asset that cannot mitigate ___ or ___risk.
An investment would most likely not be made in an infrastructure asset that cannot mitigate volume or price risk.
The demand for infrastructure assets tend to be ___ to price changes and economic downturns.
The demand for infrastructure assets tend to be inelastic to price changes and economic downturns.
Infrastructure assets have ___ barriers to entry and ___characteristics.
Infrastructure assets have high barriers to entry and monopolistic characteristics.
___ infrastructure prices mitigate downside risk if costs increase, because prices can increase to maintain their target return.
Regulated infrastructure prices mitigate downside risk if costs increase, because prices can increase to maintain their target return.
Prices typically (can/cannot) be increased to compensate for capital spending used for improved services.
Prices typically cannot be increased to compensate for capital spending used for improved services.
Low ___ costs make infrastructure assets defensive and can support high levels of ___.
Low operating costs make infrastructure assets defensive and can support high levels of leverage.
___ infrastructure has the lowest sensitivity to business cycles.
Social infrastructure has the lowest sensitivity to business cycles.
___ highways have high sensitivity to economic cycles.
Greenfield highways have high sensitivity to economic cycles.
Infrastructure assets should rely on ___ technology and reduce the risk of ___ ___.
Infrastructure assets should rely on proven technology and reduce the risk of technology failure.
Some infrastructure assets have ___-linked cash flows, which make them an effective ___hedge.
Some infrastructure assets have inflation-linked cash flows, which make them an effective inflation hedge.
Most infrastructure businesses have ___ annual dividend yields.
Most infrastructure businesses have high annual dividend yields.
Infrastructure assets have ___ correlations with traditional assets.
Infrastructure assets have low correlations with traditional assets.
___ ___are formed by banks and private sponsors that use their own capital and sometimes third-party capital.
Infrastructure funds are formed by banks and private sponsors that use their own capital and sometimes third-party capital.
___ ___are entities that may participate in aspects of greenfield or brownfield stages and use asset acquisition to stimulate growth.
Strategic buyers are entities that may participate in aspects of greenfield or brownfield stages and use asset acquisition to stimulate growth.
___-type financial sponsors have high expected internal rate of return targets.
Buyout-type financial sponsors have high expected internal rate of return targets.
In contrast to long-only bond portfolios, infrastructure project financing is interest rate ___ and is not ___.
In contrast to long-only bond portfolios, infrastructure project financing is interest rate hedged and is not callable.
Publicly traded infrastructure assets are generally ___ compared to REITs
Publicly traded infrastructure assets are generally undervalued compared to REITs
PPPs and regulated assets (are/are not) typically mutually exclusive.
PPPs and regulated assets are typically mutually exclusive.
Private sector investors in PPP typically form a ___ ___ ___.
Private sector investors in PPP typically form a special purpose vehicle.
