Lesson 7 of 8 · All lessons in this module
- What real estate is and why it is different
- Direct ownership, indirect vehicles and REITsVideo lesson
- Real estate returns, the risk-return spectrum and leverage
- Real estate income, inflation and diversification
- Infrastructure: assets, cash flows and categories
- Greenfield, brownfield and secondary stage; forms of investmentVideo lesson
- Infrastructure risk, return and diversification
- Integrated case: LTV covenant, leverage and infrastructure profiles
Lesson 7 of 8 · 12 min
Infrastructure risk, return and diversification
Infrastructure risk and return rise from secondary stage to brownfield to greenfield and from social to regulated to demand-based assets, while its stable, often inflation-linked cash flows give low correlation with equities and suit long-horizon investors.
In short
- Expected risk and return depend on asset type, development stage, location and deal structure.
- By stage: secondary stage lowest risk and return, brownfield in between, greenfield highest.
- By type: social infrastructure and regulated industries are lower risk; demand-based assets (new toll roads, ports, merchant power) are riskier.
- Greenfield in developing countries offers exceptional long-horizon returns with considerable risk; most funds stick to medium- and low-risk profiles.
- Investors expect primarily stable long-term cash flows that adjust for growth and inflation, secondarily capital appreciation.
- Benefits: income, low correlation, some protection against GDP growth changes and inflation; infrastructure debt has lower defaults and higher recoveries; good liability match for pensions and insurers; sovereign wealth funds allocate the most.
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