Aging infrastructure and budget shortfalls equal prime opportunities for investors
Governments around the world are undertaking crucial public-private infrastructure projects – and nowhere is it more needed than in North America.
“From a macro policy standpoint, you’ve got fiscal deficit issues that are at all-time highs, and funding’s not getting any better,” says Sprott Asset Management portfolio manager Michael Underhill, who manages five funds for Sprott, including its Global Infrastructure Fund. “Trudeau’s struggling with a $1.5 billion budget shortfall, which is going to impact the infrastructure investment program in Canada.
If you were to take a look at the Society of American Engineers’ annual report for 2014, we’ve got a $2.2 trillion dollar infrastructure shortfall just in the US, and because of fiscal deficit issues, that will not be met.”
The upside is that funding for schools, roads, bridges, utilities, water and other vital infrastructure in both the US and Canada will have to come from private investment. Recent statistics suggest that one-third of the assets in Canada’s 10 largest public pensions are directed toward alternative investments such as private equity, real estate and infrastructure.
So where are these infrastructure opportunities?
“You have to start out top-down and look at country and currency and monetary policy, because all politics are local and all infrastructure investing is local,” Underhill says. “And then rule of law, which just means enforceable property rights. You don’t want to invest in a country … like China or Russia, where you put your money in and then they expropriate your investment.”
One example of a major essential infrastructure asset is sewage and clean running water. Unclean water is the number-one cause of death in emerging markets. India’s prime minister won the 2014 election on the platform of ‘a toilet in every house.’ Currently, more than half the homes in India lack toilets, so the opportunities in this one area alone are significant in emerging markets.
Advisors keen on taking advantage of infrastructure investment should look to the Macquarie Global Infrastructure Index, which is composed of 243 publicly-traded infrastructure companies out of perhaps 800 total around the world.
“From a macro policy standpoint, you’ve got fiscal deficit issues that are at all-time highs, and funding’s not getting any better,” says Sprott Asset Management portfolio manager Michael Underhill, who manages five funds for Sprott, including its Global Infrastructure Fund. “Trudeau’s struggling with a $1.5 billion budget shortfall, which is going to impact the infrastructure investment program in Canada.
If you were to take a look at the Society of American Engineers’ annual report for 2014, we’ve got a $2.2 trillion dollar infrastructure shortfall just in the US, and because of fiscal deficit issues, that will not be met.”
The upside is that funding for schools, roads, bridges, utilities, water and other vital infrastructure in both the US and Canada will have to come from private investment. Recent statistics suggest that one-third of the assets in Canada’s 10 largest public pensions are directed toward alternative investments such as private equity, real estate and infrastructure.
So where are these infrastructure opportunities?
“You have to start out top-down and look at country and currency and monetary policy, because all politics are local and all infrastructure investing is local,” Underhill says. “And then rule of law, which just means enforceable property rights. You don’t want to invest in a country … like China or Russia, where you put your money in and then they expropriate your investment.”
One example of a major essential infrastructure asset is sewage and clean running water. Unclean water is the number-one cause of death in emerging markets. India’s prime minister won the 2014 election on the platform of ‘a toilet in every house.’ Currently, more than half the homes in India lack toilets, so the opportunities in this one area alone are significant in emerging markets.
Advisors keen on taking advantage of infrastructure investment should look to the Macquarie Global Infrastructure Index, which is composed of 243 publicly-traded infrastructure companies out of perhaps 800 total around the world.
