FT: A bubble is inflating in infratructure assets

[quigleydoor]

Note: This refers to already built, pay-per-use or recurring fee type of assets, such as water utilities, highways, and power transmission lines.

http://www.ft.com/cms/s/0/98b0bdd4-7...0779fd2ac.html

Not enough assets to buy. Re-privatizations are recycling already privatized assets. The market enthusiasm has gotten ahead of local governments' willingness to sell.

The enormous growth of infrastructure funds is based on demand from long-term institutional investors – pension funds in particular. At best, infrastructure assets ought to be a proxy for index-linked government bonds – which are long-dated, low-risk and inflation proofed. Given that those bonds are formidably expensive, it is worth paying up for alternatives.

But that really applies only to established infrastructure in mature markets. If you build an airport in a developing country, you are taking on construction risk, operating risk, political and regulatory risk and so on. That calls for correspondingly higher returns. In fact, you have left the world of infrastructure funds for the world of private equity.

There is a contradiction between low-return, low-risk infrastructure assets, and high-fee private equity services which are required to develop the assets.

[EJ]

Re: FT: A bubble is inflating in infratructure assets

Note: This refers to already built, pay-per-use or recurring fee type of assets, such as water utilities, highways, and power transmission lines.

http://www.ft.com/cms/s/0/98b0bdd4-7...0779fd2ac.html

Not enough assets to buy. Re-privatizations are recycling already privatized assets. The market enthusiasm has gotten ahead of local governments' willingness to sell.



There is a contradiction between low-return, low-risk infrastructure assets, and high-fee private equity services which are required to develop the assets.

It's a fair point that infrastructure is likely a distant second to alternative energy as a next bubble candidate, unless communications infrastructure and energy generation and transmission is included in the definition, in which case there is some overlap.

[jk]

Re: FT: A bubble is inflating in infratructure assets

there are 3 [at least] types of infrastructure investment- 1. operating companies, 2. build up/repair companies and 3. equipment and materials suppliers. the 1st group are the focus of the article posted from the ft. the 2nd would include construction contractors, the 3rd heavy equipment manufacturers, cement producers, steel makers. the 1st have bond-like features, as stated in the article. the 2nd and 3rd are leveraged to the process, rather like gold miners are leveraged to the price of the metal. i could see an infrastructure bubble being as big a deal or even bigger than alt. energy. it depends on how bad the economy might get, and how desperate the gov't gets to recreate the wpa and ccc.

[sunny129]

Re: FT: A bubble is inflating in infratructure assets

The FT article doesn't address the infra structure Cos growing need in the international arena like India, Middle East. I for one, thinks the talk of bubble is too premature on this sector, at this point.

[Tim T]

Re: FT: A bubble is inflating in infratructure assets

there are 3 [at least] types of infrastructure investment- 1. operating companies, 2. build up/repair companies and 3. equipment and materials suppliers. the 1st group are the focus of the article posted from the ft. the 2nd would include construction contractors, the 3rd heavy equipment manufacturers, cement producers, steel makers. the 1st have bond-like features, as stated in the article. the 2nd and 3rd are leveraged to the process, rather like gold miners are leveraged to the price of the metal. i could see an infrastructure bubble being as big a deal or even bigger than alt. energy. it depends on how bad the economy might get, and how desperate the gov't gets to recreate the wpa and ccc.

I was thinking about this the other day. While the alternative energy sector could really turn into a bubble I would find it dangerous to participate in that bubble since on any day one companies invention could be ruined by another companies invention. If someone figures out how to make ethanol from algae it will really rain on the parade of those making ethanol from corn and what if something else is better than ethanol no matter how efficiently it is produced. It is really hard to know what is going to work and be profitable alternative energy wise. But for government encouraged infrastructure development the construction companies and engineering firms should all fly even if they are "heavy turkeys". I would imagine things like fluor corp., cemex, for instance would do fine. What do you guys think. I guess I'm arguing that for alternative energy it makes sense to stick to etf's and for infrastructure either etfs or individual companies. I suppose I am pointing out the obvious (maybe not to everyone) but I think its important to note at an early stage this fundamental difference between the potential alt. energy bubble vs. infrastructure bubble. When an infrastructure turkey/company looses a headwind it may still have a working business while an alt. energy company (if they loose a patent or are beat to it) they are reduced to nothing but a couple people standing around in lab coats.
-Tim

[c1ue]

Re: FT: A bubble is inflating in infratructure assets

Then there's the general infrastructure problem:

http://www.startribune.com/535/story/1474846.html

The squeeze comes from basic economics. Ethanol futures prices have fallen from about $2.50 at the beginning of the year to $1.55 Tuesday. The price of corn, meanwhile, has soared this year, with futures trading above $4 a bushel earlier this year before falling back to below $3.50.