CAIA - 19 - Infrastructure as an Investment Flashcards Preview

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Flashcards in CAIA - 19 - Infrastructure as an Investment Deck (34)
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1
Q

Infrastructure typically has the following characteristics:

  1. ___, ___assets with a ___ ___;
  2. Higher ___costs
  3. Low ___costs
  4. Supports ___.
A

Infrastructure typically has the following characteristics:

  1. Large, physical assets with a long life;
  2. Higher capital costs
  3. Low operating costs
  4. Supports society.
2
Q

There are 3 approaches to classifying infrastructure:

  1. ___ party
  2. ___of pricing
  3. Role in ___
A

There are 3 approaches to classifying infrastructure:

  1. Paying party
  2. Regulation of pricing
  3. Role in economy
3
Q

Unregulated pricing of infrastructure investments commonly occurs in the ___ sector.

A

Unregulated pricing of infrastructure investments commonly occurs in the energy sector.

4
Q

The 2 ways to classify assets based on their role in the economy is:

  1. ___
  2. ___
A

The 2 ways to classify assets based on their role in the economy is:

1. economic

2. social

5
Q

___ infrastructure assets are assets whose economic value is based on the revenue they produce.

A

Economic infrastructure assets are assets whose economic value is based on the revenue they produce.

6
Q

___ infrastructure assets provide a service and do not need to generate revenue.

A

Social infrastructure assets provide a service and do not need to generate revenue.

7
Q

Social infrastructure assets provided by the private sector are generally in the form of ___.

A

Social infrastructure assets provided by the private sector are generally in the form of PPPs.

8
Q

Infrastructure investments needed to help the global economy reach its potential are expected to be around ___% of GDP by 2030.

A

Infrastructure investments needed to help the global economy reach its potential are expected to be around 3.5% of GDP by 2030.

9
Q

___ ___is a financing of projects using long-term loans secured by the projects assets, with financing costs covered by the project’s cash flows.

A

Project finance is a financing of projects using long-term loans secured by the projects assets, with financing costs covered by the project’s cash flows.

10
Q

In the U.S., several factors have driven increased private-sector participation in infrastructure:

  1. Funding ___
  2. ___of infrastructure for new investments
  3. Attempts to obtain private-sector ___and ___ ___
  4. Favorable ___ ___
  5. Availability of ___from private sources
A

In the U.S., several factors have driven increased private-sector participation in infrastructure:

  1. Funding shortfalls
  2. Divestitures of infrastructure for new investments
  3. Attempts to obtain private-sector management and technical expertise
  4. Favorable PPP legislation
  5. Availability of financing from private sources
11
Q

3 characteristics drive an infrastructure assets risk/return profile:

  1. ___ of ___
  2. ___ ___
  3. ___scope
A

3 characteristics drive an infrastructure assets risk/return profile:

  1. Stage of maturity
  2. Geographic location
  3. Sector scope
12
Q

Infrastructure assets can either be ___ or ___assets in terms of their stage of maturity.

A

Infrastructure assets can either be greenfield or brownfield assets in terms of their stage of maturity.

13
Q

The greenfield phase is quite ___ and ___. It’s risks tend to be ___.

A

The greenfield phase is quite long and multifaceted. It’s risks tend to be high.

14
Q

Risks of greenfield projects include:

  1. ___ and ___risks
  2. ___risks
  3. ___, ___and ___risks
A

Risks of greenfield projects include:

  1. Design and technological risks
  2. Construction risks
  3. Economic, legal and political risks
15
Q

The primary risk for brownfield projects are:

  1. ___ risk
  2. ___and ___risk
A

The primary risk for brownfield projects are:

  1. Revenue risk
  2. Operational and maintenance risk
16
Q

An investment would most likely not be made in an infrastructure asset that cannot mitigate ___ or ___risk.

A

An investment would most likely not be made in an infrastructure asset that cannot mitigate volume or price risk.

17
Q

The demand for infrastructure assets tend to be ___ to price changes and economic downturns.

A

The demand for infrastructure assets tend to be inelastic to price changes and economic downturns.

18
Q

Infrastructure assets have ___ barriers to entry and ___characteristics.

A

Infrastructure assets have high barriers to entry and monopolistic characteristics.

19
Q

___ infrastructure prices mitigate downside risk if costs increase, because prices can increase to maintain their target return.

A

Regulated infrastructure prices mitigate downside risk if costs increase, because prices can increase to maintain their target return.

20
Q

Prices typically (can/cannot) be increased to compensate for capital spending used for improved services.

A

Prices typically cannot be increased to compensate for capital spending used for improved services.

21
Q

Low ___ costs make infrastructure assets defensive and can support high levels of ___.

A

Low operating costs make infrastructure assets defensive and can support high levels of leverage.

22
Q

___ infrastructure has the lowest sensitivity to business cycles.

A

Social infrastructure has the lowest sensitivity to business cycles.

23
Q

___ highways have high sensitivity to economic cycles.

A

Greenfield highways have high sensitivity to economic cycles.

24
Q

Infrastructure assets should rely on ___ technology and reduce the risk of ___ ___.

A

Infrastructure assets should rely on proven technology and reduce the risk of technology failure.

25
Q

Some infrastructure assets have ___-linked cash flows, which make them an effective ___hedge.

A

Some infrastructure assets have inflation-linked cash flows, which make them an effective inflation hedge.

26
Q

Most infrastructure businesses have ___ annual dividend yields.

A

Most infrastructure businesses have high annual dividend yields.

27
Q

Infrastructure assets have ___ correlations with traditional assets.

A

Infrastructure assets have low correlations with traditional assets.

28
Q

___ ___are formed by banks and private sponsors that use their own capital and sometimes third-party capital.

A

Infrastructure funds are formed by banks and private sponsors that use their own capital and sometimes third-party capital.

29
Q

___ ___are entities that may participate in aspects of greenfield or brownfield stages and use asset acquisition to stimulate growth.

A

Strategic buyers are entities that may participate in aspects of greenfield or brownfield stages and use asset acquisition to stimulate growth.

30
Q

___-type financial sponsors have high expected internal rate of return targets.

A

Buyout-type financial sponsors have high expected internal rate of return targets.

31
Q

In contrast to long-only bond portfolios, infrastructure project financing is interest rate ___ and is not ___.

A

In contrast to long-only bond portfolios, infrastructure project financing is interest rate hedged and is not callable.

32
Q

Publicly traded infrastructure assets are generally ___ compared to REITs

A

Publicly traded infrastructure assets are generally undervalued compared to REITs

33
Q

PPPs and regulated assets (are/are not) typically mutually exclusive.

A

PPPs and regulated assets are typically mutually exclusive.

34
Q

Private sector investors in PPP typically form a ___ ___ ___.

A

Private sector investors in PPP typically form a special purpose vehicle.

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