Pursuing a new breed of infrastructure investments with securities-backed financing

Periods of upheaval demonstrate the value of defensive investments such as infrastructure stocks. With liquidity tight and interest rates set to remain high well into 2024, investors need innovative capital solutions to gain exposure to them. Securities-backed financing from EquitiesFirst offers a progressive solution for investors to capitalize on such infrastructure opportunities.

Infrastructure assets have long been sought after when markets turn bearish, thanks to their ability to generate steady and predictable cash flows, along with their high barriers to entry and monopolistic positioning.^[1] In the current climate of persistent inflation, these often-regulated assets also generally benefit from the ability to pass on higher costs to end consumers via higher prices.

Moreover, infrastructure is carried by reliable demographic tailwinds. The world’s population is expected to increase by almost 2 billion by 2050,^[2] requiring millions of miles of new roads, power lines and water mains, tens of thousands of new hospitals, schools, airports, ports and railways, and vast additions to telecommunications and energy capacity.

A fresh perspective on infrastructure and securities-backed financing

Like most things characterized as dependable, infrastructure investing has traditionally been seen as unadventurous and having limited upside potential. But it is time to reconsider that view, with revolutions in energy, mobility and digitization having fundamentally transformed the asset class, paving the way for growth well beyond the historical average for the sector.^[3]

Although funding from traditional sources has become harder to come by, the availability of progressive capital solutions helps to make infrastructure investments more accessible.

Given the prevailing climate of macroeconomic and geopolitical uncertainty, even though investors are broadly optimistic about the prospects for global equities markets over the next two years, they are nevertheless tending towards a conversative approach in 2024. These conditions make the non-purpose financing provided by EquitiesFirst particularly useful, providing the flexibility to nimbly pivot towards new opportunities as they arise. But crucially, while pursuing those fresh opportunities, investors passively retain the upside potential of the underlying securities provided as collateral for the loan.

Using securities-backed financing to tap Asia’s standout infrastructure potential

While infrastructure presents a compelling theme across the globe, the greatest growth potential is arguably in Asia, bolstered by the rapid expansion of the region’s middle class.^[4] Asia Pacific’s demographics and economic dynamism will spur sustained demand across a broad range of infrastructure categories, from basic transport and technology to international travel and healthcare. There will also be need for sizeable additions to the region’s infrastructure spanning industrials, utilities, waste management, renewable energy, data centres and education services.

In addition, Asia Pacific’s infrastructure sector provides exceptional diversity, allowing investors to balance their portfolios between developed and emerging markets to suit their risk appetite. Emerging markets such as India, China and Indonesia are set for considerably stronger economic growth in the coming years than the global average, accompanied by a boom in mass affluence. On the other hand, infrastructure assets in the region’s developed markets of Australia, Hong Kong, Japan and Singapore have a lower risk profile and more predictable yields.^[5]

America’s infrastructure push

The US is another region where there is considerable optimism about infrastructure, in the wake of the passage of the Infrastructure, Investment and Jobs Act (IIJA) in late 2021. Hailed as a major step towards rebuilding the country’s infrastructure, the IIJA has been described as a “generational investment,” the impacts of which have only begun filtering through to the country’s infrastructure-related companies.^[6]

That, along with ongoing onshoring initiatives and fiscal stimulus that came through during the pandemic is “just now hitting” the US economy, according to Bryant VanCronkhite, senior portfolio manager at Allspring Global Investments.^[7]

And more recently, the passage of the Inflation Reduction Act (IRA) and Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act in the US have brought vital production and investment incentives for domestic development of green and disruptive technologies, which should further stoke demand for related infrastructure in the US.^[8]

The time is now for infrastructure – and alternative funding

In an environment of higher bonds yields and market uncertainty, listed infrastructure offers valuable differentiation in light of its defensiveness relative to other equities and greater ability to provide long-term capital growth over an economic cycle than bonds.^[9]

In light of the possibility that oversold markets – in equities and cryptocurrencies – may rebound, while increasing exposure to infrastructure assets, investors may well wish to retain the upside potential of their existing portfolios. Securities-backed finance allows investors to do just that, via an arrangement that lets them use their stocks or major coins as collateral to conveniently and cost-effectively access capital.

All loans are non-recourse, meaning that in the event the borrower defaults, their liability is limited to the collateral pledged. And importantly, the arrangement should not have a material impact on the prices of the pledged securities because EquitesFirst is contractually obliged not to lend them for shorting.

Although the technology sector grabbed the spotlight for much of 2023, it looks like it’s now infrastructure stocks’ time to shine.^[10] And securities-backed financing provides an ideal bridge to take investors to the opportunity.

[1] https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/portfolio-insights/the-case-for-private-infrastructure.pdf

[2] https://www.un.org/en/desa/world-population-projected-reach-98-billion-2050-and-112-billion-2100

[3] https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/infrastructure-investing-will-never-be-the-same

[4] https://www.futuresplatform.com/blog/asia-growing-middle-class-reshaping-global-consumption

[5] https://tribeca-files.s3.amazonaws.com/tribecaftp/docs/The-Business-Times-Apac’s-infrastructure-opportunity-is-not-just-a-private-affair-TAIF-Susanta-Mazumdar.pdf

[6] https://www.globalxetfs.com/inflation-reduction-act-and-chips-act-likely-to-build-more-momentum-for-u-s-infrastructure/

[7] https://www.reuters.com/markets/us/while-ai-takes-spotlight-infrastructure-stocks-shine-2023-08-04/

[8] https://www.globalxetfs.com/inflation-reduction-act-and-chips-act-likely-to-build-more-momentum-for-u-s-infrastructure/

[9] https://www.franklintempleton.com.hk/en-hk/articles/2023/clearbridge-investments/total-returns-set-infrastructure-apart-from-equities-and-bonds

[10] https://www.reuters.com/markets/us/while-ai-takes-spotlight-infrastructure-stocks-shine-2023-08-04/

Disclaimer

Past performance does not guarantee future returns, and individual returns are not guaranteed or warranted.

This Document is intended solely for accredited investors, sophisticated investors, professional investors, or otherwise qualified investors, as may be required by law or otherwise, and it is not intended for, and should not be used by, persons who do not meet the relevant requirements. The content provided herein is for informational purposes only and is general in nature and not targeted to any specific objective or financial need. The views and opinions expressed in this Document have been prepared by third parties and do not necessarily reflect the views and opinions of EquitiesFirst. EquitiesFirst has not independently examined or verified the information provided herein, and no representation is made that it is accurate or complete. Opinions and information herein are subject to change without notice. The content provided does not constitute an offer to sell (or solicitation of an offer to purchase) any securities, investments, or any financial products (“Offer”). Any such Offer shall only be made through a relevant offering or other documentation which sets forth its material terms and conditions. Nothing contained in this Document shall constitute a recommendation, solicitation, invitation, inducement, promotion, or offer for the purchase or sale of any investment product by Equities First Holdings, LLC or its subsidiaries (collectively, “EquitiesFirst”), nor shall this Document be construed in any way as investment, legal, or tax advice, or as a recommendation, reference, or endorsement by EquitiesFirst. You should seek independent financial advice prior to making an investment decision about a financial product.

This Document contains the intellectual property of EquitiesFirst in the United States and other countries, including, without limitation, their respective logos and other registered and unregistered trademarks and service marks. EquitiesFirst reserves all rights in and to their intellectual property contained in this Document. The Document should not be distributed, published, reproduced or otherwise made available in whole or in part by recipients to any other person and, in particular, should not be distributed to persons in any country where such distribution may lead to a breach of any legal or regulatory requirement.

EquitiesFirst make no representation or warranty with respect to this Document and expressly disclaim any implied warranty under law. You acknowledge that EquitiesFirst is not liable under any circumstances for any direct, indirect, special, consequential, incidental, or punitive damages whatsoever, including, without limitation, any lost profits or lost opportunity, even if EquitiesFirst has been advised of the possibility of such damages.

EquitiesFirst makes the following further statements that may be applicable in the stated jurisdiction:

The information contained on this Document is intended for persons located in Australia only and classified as a Wholesale Client only as defined in Section 761G of the Corporations Act 2001. The distribution of information to persons outside this criteria may be restricted by law and persons who come into possession of it should seek advice and observe any such restriction.

The material contained in this Document is for information purposes only and should not be construed as an offer or solicitation or recommendation to buy or sell financial products.

The information contained in this Document is intended to be general in nature and is not personal financial product advice. Any advice contained in the Document is general advice only and has been prepared without considering your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. You should seek independent financial advice and read the relevant disclosure statements or other offer documents prior to making an investment decision about a financial product.

Dubai: Equities First Holdings Hong Kong Ltd (DIFC Representative Office) at Gate Precinct Building 4, 6th Floor, Office 7, Dubai International Financial Centre (commercial license number CL7354) is regulated by the Dubai Financial Services Authority (“DFSA”) as a Representative Office (DFSA Firm Reference No.: F008752). All rights reserved.

The information contained in this document is intended to be general in nature, and, to the extent that it is perceived as advice, any advice contained in this document is general advice only and has been prepared without considering your objectives, financial situation, suitability of the financial products or your needs.

The material contained in this document is for information purposes only and should not be construed as financial advice, including an offer or solicitation or recommendation to buy or sell financial products. The information contained in this document is intended to be general in nature and any advice contained in this document is general advice only and has been prepared without considering your objectives, financial situation, suitability of the financial products or your needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. If you do not understand the contents of this document, you should consult an authorised financial adviser.

This document relates to a financial product which is not subject to any form of regulation or approval by the DFSA. The DFSA has no responsibility for reviewing or verifying any documents in connection with this financial product. Accordingly, the DFSA has not approved this document or any other associated documents nor taken any steps to verify the information set out in this document, and has no responsibility for it.

Hong Kong: Equities First Holdings Hong Kong Limited is licensed under the Money Lenders Ordinance (Money Lender’s Licence No. 1659/2024) and to carry on the business of dealing in securities (Type 1 licence) under the Securities and Futures Ordinance (“SFO”) (CE No. BFJ407). This Document has not been reviewed by the Hong Kong Securities and Futures Commission. It is not intended as an offer to sell securities or a solicitation to buy any product managed or provided by Equities First Holdings Hong Kong Limited and is only intended for persons who qualify as Professional Investors under the SFO. This document is not directed to individuals or organizations for whom such offers or invitations would be unlawful or prohibited.

Korea: The foregoing is intended solely for sophisticated investors, professional investors or otherwise qualified investors who have sufficient knowledge and experience in entering into securities financing transactions. It is not intended for, and should not be used by, persons who do not meet those criteria.

United Kingdom: Equities First (London) Limited is authorised and regulated in the UK by the Financial Conduct Authority (“FCA”). In the UK, this Document is only being distributed and made available to persons of the kind described in Article 19(5) (investment professionals) and Article 49(2) (high net worth companies, unincorporated associations etc.) of Part IV of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (‘’FPO’’) and any investment activity to which this presentation relates is only available to, and will only be engaged in with, such persons. Persons who do not have professional experience in matters relating to investment or who are not persons to whom Article 49 of the FPO applies should not rely on this document. This Document is only prepared for and available to persons who qualify as Professional Investors under the Markets in Financial Instruments Directive.