Introduction to infrastructure

MGU provides investors with an opportunity to access the infrastructure asset class through investing in US and non-US issuers that own or operate infrastructure assets (“Infrastructure Issuers”).

Infrastructure assets are an underlying foundation of basic services, facilities and institutions upon which the growth and development of a community depends.

Infrastructure Issuers typically provide the necessities of everyday life, such as: fresh water, roads, airports, gas, power, district heating and cooling, hospitals, schools and other social services.

Some of the key attributes of Infrastructure Issuers include:

• Essential services: Many Infrastructure Issuers are the sole providers of an essential product or service (e.g. water/wastewater, power and transportation services) to a segment of the population, and often retain this characteristic for an extended period of time
• Monopolistic: Many infrastructure assets are monopolistic or near-monopolistic in nature, thereby providing a strategic competitive advantage
• Fixed and regulated returns: Monopoly-type market environment may bring access to predictable returns through regulation or long-term contracts
• Leverage on a fixed cost base: Once an infrastructure asset is developed, ongoing operational-maintenance expenditure may be relatively low and stable. As a result, increases in revenue may not result in proportionate increases in operating expenditure, thereby increasing free cash flow.
• Relatively inelastic demand: Demand for infrastructure-related products or services is often linked to underlying economic or demographic growth and may be more stable and less sensitive to changes in price compared with other products or services
• Inflation linkage: The underlying revenue of infrastructure assets may be linked to inflation, sometimes directly through a regulatory framework or through concession agreements linking price growth to inflation
• Long-life assets: Infrastructure assets may have long economically useful lives and may operate under long-term concessions/agreements

Infrastructure - a growing market

In several developed countries outside the United States (including the United Kingdom and Australia) there has been, over many years, a trend of increasing privatization as national governments spend less on infrastructure assets.

In the United States, where most infrastructure assets have typically been owned by state and municipal governments, Macquarie Fund Adviser, LLC (“MFA”) believes there may be greater opportunity for the private sector to participate in the infrastructure asset class, as state and municipal governments seek to prioritize their expenditures away from spending on infrastructure assets.

Furthermore, in various developing economies that are experiencing rapid growth in the demand for infrastructure products and services (such as in China and India), MFA believes there are increasing opportunities to invest in Infrastructure Issuers.