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.

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[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/