Building for the future
When you invest in infrastructure your money is used to invest
in projects like roads, railways, ports, airports,
telecommunications facilities, electricity generation, gas or
electricity transmission or distribution, water supply, sewerage or
Infrastructure is a long-term investment and some projects may
take a long time to generate cash flows.
Before you invest you should take time to understand the unique
characteristics and risks of the infrastructure investment. Here
are some things to look out for before putting your money on the
How infrastructure investments
Your money is channelled into infrastructure projects through
infrastructure 'entities'. These are either registered managed
investment schemes and/or infrastructure companies. These
investments are usually listed on a public market such as the Australian
Securities Exchange (ASX).
A small number of unlisted companies and unlisted unit trusts are also available to
investors and can be accessed by dealing directly with the entity
Infrastructure assets are often very different from other
investments such as shares. Here are some of
- Infrastructure entities may only be contracted to operate an
infrastructure asset for a set period of time.
- Infrastructure entities may own less than 100% of their
infrastructure assets so may not have total control over their
- Some infrastructure projects are subject to government
regulation. For example, the prices that some infrastructure
entities can charge are set by the government.
- Infrastructure projects are often unique, and difficult to
Investments in unlisted infrastructure entities are less liquid
than some other investments, which means they cannot be as easily
sold and converted to cash. This could limit your ability to
withdraw your money when you need it.
It's important to diversify your investments
across a range of investments.
The risks of investing in
Infrastructure investments can be risky because of the following
- Cash flow forecasts - Infrastructure entities
may be too optimistic in their cash flow assumptions. If they don't
generate enough cash flow to meet their costs and debt repayments,
they may not be able to pay you distributions or return your money
(or the value of your investment) when you ask for it.
- Performance and usage forecasts -
Infrastructure entities often rely on forecasts of the future use
and performance of an asset and if their assumptions are incorrect,
the value of the investment may decrease.
- Hard to sell - Unlisted infrastructure
projects are often unique, so it can be difficult to compare one to
another, which can also make your investment difficult to
The risks of investing in infrastructure entities were
highlighted during the global financial crisis. Some infrastructure
companies collapsed at this time and investors suffered significant
losses as the value of investments decreased due to the unexpected
high cost of infrastructure projects.
If you decide to invest in unlisted entities, be aware that many
do not allow you to get your money back before the project ends.
Even if withdrawal is allowed there may be penalties or you may
still have to wait a long time. Before investing, make sure you can
wait for the required period of time.
The product disclosure statement (PDS) or
prospectus will describe the characteristics and risks of an
infrastructure investment. By law, these documents must also
disclose any information that might impact your decision to invest.
It's important to read the whole document before you invest.
Here are specific things you should focus on when reading a
prospectus or PDS about an infrastructure investment.
Check what the entity plans to do with your money. This
information should be clearly set out in the prospectus, but you
should ask the entity any questions you have.
Business model, assets and debts
If you are acquiring existing securities in a listed
infrastructure entity, make sure you understand the entity's
business model, its assets (including their location) and how much
debt the entity has.
Development timeframe, future growth, valuation and cash
If your money will be used to develop infrastructure assets
(rather than to acquire existing operational assets), make sure you
understand the answers to the following questions:
- Will the development be completed on time and on budget?
- What assumptions has the infrastructure entity made about the
use of the asset in the future and the growth of this usage?
- How is the development valued?
- How will the entity meet its cash flow needs before the asset
Payments to management
Are payments to management linked to the performance of the
entity? Incentive-based payments (for example, bonuses) to
management should be linked primarily to the entity's performance
and not to the performance of other related entities.
Is the corporate structure designed to maximise returns to
investors or to the entity or people operating the entity?
Do all investors have the same rights? Are your units or shares
in the entity fully paid, or could you owe money later?
ASIC's Regulatory Guide 231,
Infrastructure entities: Improving disclosure for retail
investors, outlines other key information the company should
disclose to you so you can assess the risks.
See ASIC's guide to Investing in
infrastructure and MoneySmart tips on how to
Think about your goals and risk tolerance
before you invest in infrastructure entities. If you're not
comfortable with the risks, look at less risky financial products
Last updated: 08 Jun 2018