Build Your Portfolio with Infrastructure Assets

There is no uniform definition for what qualifies as infrastructure assets. Generally, the term applies to investing in long-term projects that require high amounts of capital and are designed to meet needs of a large group of people. Once the project is complete, it should represent a very large market share, often controlling a monopoly in a certain area or industry. Because the projects lead to these powerful situations, they are considered recession proof and, at times, risk proof investments. 

Types of Infrastructure

Depending on the nation and area where a project takes place, infrastructure needs vary greatly. In general, every area needs two main types of infrastructure: economic and social. Economic infrastructure relies on independent consumers that will eventually purchase the product being created. For example, building cell phone towers is an example of developing economic infrastructure. Social infrastructure focuses on the more basic needs of a population. Because the needs are so basic, the projects may eventually be subsidized, with independent consumers spending very little money for the service. For example, a hospital is largely subsidized by insurance payments, both public and private, and the population does not forfeit as much money personally each time a hospital visit occurs.

Unlisted Equity Assets

There are three ways to build an infrastructure portfolio. The first is to invest in unlisted equity by becoming an owner of a development project. You must provide a very substantial amount of capital in order to take part in this transaction, or you may access the project through a large institutional fund. With an unlisted project, the owners have a high degree of control over the pace and direction of the project. Only take on this project if you are willing to be highly involved in the management and development of the project over the long-term. It is important to realize it can take years or decades to turn a profit on a very large unlisted equity asset. 

Listed Equity Assets

The second major source of income from infrastructure assets comes from publicly held companies. An investor can purchase shares in an infrastructure company, taking a very small part in the ownership of the asset, and expect consistent, moderate returns in the future. Investing in a power company is an example of finding a listed equity infrastructure asset. You can access this purchase on the general market by purchasing shares directly or by purchasing shares in an infrastructure exchange traded fund (ETF). An infrastructure ETF holds a number of underlying assets that are all involved in infrastructure development. 

Controlling Debt Instruments for Infrastructure Development

If you want the profits of an owner without engaging in ownership responsibilities, investing in debt instruments to fund infrastructure projects is a good method. You may find bonds readily available on the open market for a specific project. These bonds can be simple municipal bonds, or they may be private company bonds issued on foreign projects. Typically, the bonds are very long-term, so it is important to look for inflation protection on these instruments.