Alternative Investments

Why Infrastructure Makes Sense

December 8, 2015

Edmonton has been an exciting place to live these last few years!  Our boardroom looks directly over the new Ice District construction site; most of us drive over the new Walterdale Bridge construction (see photo) and it’s hard not to get around without hearing about or seeing a new growth project in our great city.   Regardless of your routes around our city (I ride a bike to work, therefore I am hopeful for more bike lanes!) you have likely been disrupted in some fashion. In fact, there were close to 5 Billion dollars of building and construction permits issued for Edmonton in 2014, a new record. It doesn’t stop in our backyard; the new Canadian Government is planning to spend $125 Billion over the next ten years directed at Transit, Social and Green Infrastructure. Globally, it’s projected that $57 Trillion of investment in Infrastructure is needed before 2030 to keep pace with global needs. Cash strapped governments have begun reaching out to the private sector to help meet that demand (McKinsey Global Institute, 2013).

From the standpoint of building your portfolio, there are 3 reasons we favour the asset class:

Institutional Investing: While we have been believers in Infrastructure for some time, increasingly we are seeing Infrastructure become a significant portion of some of the largest Pension and Endowment Portfolios. Of Alberta’s $18 Billion dollar Alberta Heritage Fund, 7.4% ($1.3B) is currently invested directly in Infrastructure projects.

Downside Protection: We always prefer investments that perform well over the long term, yet protect your capital when markets are volatile. Given the nature of Infrastructure either providing essential services: such as roads/utilities and the long term nature of their projects they have historically performed better during negative market periods. Capital protection is our primary objective!

Steady Yield: Another element we look for in investments is yield. Given the blend of mature investments and companies participating in current growth, Infrastructure companies have a higher payout than common Canadian or US equity, with yield becoming a large contributor to overall return. Steady cash flow streams from Infrastructure companies (like Utility companies) can help meet our income needs while holding quality assets.

Infrastructure does not end at roads. It includes renewable power generation, waterworks, ports, rails, airports, cellular towers & satellites. We are excited about the growth, the stability and the properties it brings to our portfolios.

Please feel free to call us at anytime to discuss!
– Pete