1. Cohen & Steers
Global Infrastructure
The $40 Trillion Imperative
2010
EDUC ATIONAL SERIES
Rapid economic growth and strains on
existing networks have magnified the
importance of global infrastructure.
Developed nations need to upgrade deteriorating roads, bridges and
electricity networks. Developing nations are investing heavily to support
their fast-growing economies and rising standards of living. The price tag
is expected to total more than $40 trillion globally by 2030.
In this report, we highlight the trends contributing to infrastructure’s
compelling investment thesis, namely:
Population growth and rapid urbanization in developing nations•
Deterioration of existing infrastructure assets in developed nations•
Governments’ growing reliance on private infrastructure financing•
Listed infrastructure’s attractive return characteristics and low•
correlation with bonds and broader equity markets
This brochure must be accompanied by the most recent applicable quarterly Cohen Steers mutual fund fact sheet(s) if used in connection with the sale of
mutual fund shares to the general public.
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Infrastructure needs vary by country.
China is the world’s largest importer of soybeans and Brazil is the largest exporter. Yet China•
can’t rely on Brazil to supply the beans it needs when it needs them because of Brazil’s
subpar infrastructure. Most Brazilian soybeans are trucked hundreds of miles across dirt
roads. When they finally arrive at port, there may be further delays as cargo ships await
docking space. Improvements to Brazil’s logistics and transportation networks are estimated
at US$4.5 billion annually.(1)
Canada exports 38% of its GDP: more than C$1.8 billion in goods crosses the U.S. border•
daily, and exports to China are growing an average of 20% a year. To relieve some of the strain
on Canada’s transportation infrastructure, the country’s leaders have committed C$1 billion(2)
to the Asia Pacific Gateway and Corridor, a network of rail, road and port improvements in
western Canada.
Australia is the world's driest continent, and a four-year drought has exacerbated an already•
dire situation. Sheep prices fell 80% in 2007 as ranchers sent record numbers of livestock to
the stockyards rather than let them die of thirst. In response, the Australian government has
accelerated plans to invest US$42 billion in water infrastructure over the next few years.(1)
How a nation responds can lead to private sector solutions and investment opportunities.
(1)“Investing in Global Infrastructure 2007: An Emerging Asset Class,”Ernst Young
(2)Transport Canada, May 2007
Cohen Steers
Global Infrastructure
The $40 Trillion Imperative
3. EDUC ATIONAL SERIES
1GLOBAL LISTED INFRASTRUCTURE
What is Infrastructure?
Infrastructure assets provide the framework for economic growth and modernization.
This report will focus on economic infrastructure, which includes the assets of
transportation, energy, utilities and communications companies.
Infrastructure Characteristics
Infrastructure companies typically share the following characteristics:
• Long-lived assets—Electrical grids, natural gas pipelines, water treatment plants,
toll roads and wireless towers are just a few infrastructure assets with long life
spans and stable cash flows.
• High barriers to entry—Building infrastructure assets requires significant capital,
making it prohibitive for most competitors to enter the market.
• Monopolistic structure—Many companies benefit from government regulation
and minimal competition.
Inelastic demand• —Infrastructure provides essential services that tend to be
resistant to economic downturns.
These factors, alone or in combination, have the potential to generate stable growth
and income.
Economic Infrastructure Categories
Transportation Energy Utilities Communications
Toll Roads
Airports
Marine Ports
Storage
Transportation
Renewable Power
Generation
Electric Utilities
Gas Utilities
Water
Independent Power
Producers
Wireless Towers
Satellite Services
Source: Cohen Steers
Infrastructure’s unique
characteristics may
provide stability to a
diversified portfolio.
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EDUC ATIONA L SE RIE S
2
Drivers: Globalization and Urbanization
Economic liberalization over the last two decades has contributed to the growth in
global demand for infrastructure investment. World gross domestic product (GDP)
is projected to grow about 3% per year through 2030, with developing countries—
driven primarily by Brazil, Russia, India and China (the BRIC nations)—outpacing
developed nations, 4% to 2.4%.
Globalization has led to a significant population shift as millions flock to cities in
search of greater economic opportunities; by 2030, six out of 10 people will reside
in urban centers.(3)
The result has been an unforeseen demand for power, water and
transportation that current systems are not equipped to handle. Global electricity
consumption, for example, is expected to double between 2003 and 2030.(4)
BRIC Nations Lead Developing Countries in Gaining Share of World GDP
Source: ISI Group. Numbers may not add to 100% due to rounding.
(1) BRIC = Brazil, Russia, India and China
(2)Western Europe = France, Germany, Italy and the United Kingdom, for the purpose of this report
Global Population Growth: An Urban Trend
Source: United Nations, 2006
United
States
Other
Developed
BRIC(1)
Other
Developing
CountriesWestern
Europe(2)
Japan
21.6%
14.5%
7.4%13.8%
17.9%
25.1%
Other
Developed BRIC(1)
Other
Developing
Countries
United
States
Western
Europe(2)
Japan
18.5%
17.2%
11.5%15.1%
9.1%
27.5%
Developing Countries
Governments that
fail to upgrade
and maintain key
infrastructure assets
may quickly lose their
competitive advantage
and jeopardize their
countries’ long-term
economic viability.
More than half of the
world’s population—
3.3 billion—now live
in urban areas.
0
2
4
6
8
10
Population(billions)
1950
2.5
1955
2.8
1960
3.0
1965
3.3
1970
3.7
1975
4.1
1980
4.5
1985
4.9
1990
5.3
1995
5.7
2000
6.1
2005
6.5
2010
6.9
2015
7.3
2020
7.7
2025
8.0
2030
8.3
Urban Population
Total Population
(3) United Nations, 2006
(4) Energy Information Administration, October 2007
5. EDUC ATIONAL SERIES
3GLOBAL LISTED INFRASTRUCTURE
The $40 Trillion Infrastructure Challenge: 2005–2030
Projected Infrastructure Spending (in trillions)
Sources: Booz Allen Hamilton, Global Infrastructure Partners,World Energy Outlook, Organisation for Economic Co-operation and Development (OECD), Boeing,
Drewry Shipping Consultants, U.S. Department ofTransportation
Water $0.23
Power $0.18
Road Rail $0.31
Air/Seaport $0.14
MIDDLE
EAST
Total: $0.86
Water $0.23
Power $0.54
Road Rail $0.31
Air/Seaport $0.02
AFRICA
Total: $1.10
Water $3.62
Power $1.53
Road Rail $0.94
Air/Seaport $0.43
NORTH
AMERICA
Total: $6.52
Water $4.97
Power $1.44
Road Rail $1.01
Air/Seaport $0.06
LATIN/
SOUTH
AMERICA
Total: $7.48
Water $4.52
Power $1.08
Road Rail $3.12
Air/Seaport $0.43
EUROPE
Total: $9.15 Water $9.04
Power $4.23
Road Rail $2.11
Air/Seaport $0.51
ASIA/
OCEANIA
Total: $15.89
Water 55%
Power 22%
Road Rail 19%
Air/Seaport 4%
Percentage of
Infrastructure
Spending by Sector,
Through 2030:
In most developing nations, the lion’s share of infrastructure spending will target new
construction as governments strive to expand inadequate networks. In developed
countries, the immediate need is to upgrade and maintain existing infrastructure.(1)
Global demand
for infrastructure
demand is diversified
by geography and
by industry.
Global Leaders Weigh in on Infrastructure
Presidents and prime ministers around the world have made infrastructure
creation and upkeep a priority.
Brazil—“As a government priority we have taken on the construction of major
infrastructure projects in our region. More than just a large group of paths of
integration, it will be a channel for development, bringing economic progress to
areas that have been left out of the benefits of modern society.”
–President Luiz Inácio Lula da Silva, 2004
Canada—“In collaboration with the private sector and other levels of government,
our government is embarking on the largest infrastructure development program
in half a century (C$33 billion). Not since the great national transportation mega
projects of the post-war era has the federal government launched such a massive
undertaking.”
–Prime Minister Stephen Harper, 2007
Australia—“Many urban water pipe systems have been laid down a century ago,
leak like hell, resulting in certain cities [having] up to 30% loss in leakage. That’s
why we’ve established a quarter of a billion dollar fund to partner with local
authorities and state governments, where appropriate, to deal with that.”
–Prime Minister Kevin Rudd, 2008
(1)“Policy Brief: Infrastructure to 2030,”Organisation for Economic Co-operation and Development (OECD), January 2008
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EDUC ATIONA L SE RIE S
4
U.S. Infrastructure report card:
“needs improvement”
Maintaining infrastructure has proved to be a difficult task, even for the world’s
largest national economy. The United States earned a D from the American Society of
Civil Engineers (ASCE) on its 2009 Report Card for America’s Infrastructure.
U.S.Infrastructure
Subject
2009
Grade Comments
Aviation D
Airports will face the challenge of accommodating increasing numbers
of regional jets and new super-jumbo jets.
Bridges C
It will cost $9.4 billion a year for 20 years to overhaul the nation’s
160,000 deficient bridges.
Dams D
More than $10 billion is needed over the next 12 years to address all
critical non-federal dams.
Drinking Water D-
America faces a shortfall of $11 billion annually to replace aging facilities
and comply with safe drinking water regulations.
Energy
(national grid)
D+
Growth in electricity demand and investment in new power plants has
not been matched by investment in new transmission facilities.
Navigable
Waterways
D-
A single barge traveling the nation's waterways can move the same
amount of cargo as 58 semi-trucks—at one-tenth the cost.But almost
50% of the 257 locks operated by the U.S.Army Corps of Engineers
are functionally obsolete.It will cost up to $125 billion to replace the
present system.
Rail C-
The freight railroad industry needs to spend $175–$195 billion over
the next 20 years to maintain existing infrastructure and expand for
freight growth.
Roads D-
Poor road conditions cost U.S.motorists $54 billion a year in repairs and
operating costs—$275 per motorist.Americans spend 3.5 billion hours a
year stuck in traffic,at a cost of $63.2 billion annually to the economy.
Transit D
Transit use increased faster than any other mode of transportation—up
21% between 1993 and 2002—as federal investment during this period
stemmed the decline of existing transit infrastructure.But reduced
federal spending in real dollars since 2001 threatens this turnaround.
U.S.Infrastructure G.P.A.= D
Total Investment
Needs = $2.2 Trillion(1)
A = Execeptional D = Poor
B = Good F = Failing
C = Medicocre
Source: American Society of Civil Engineers (ASCE), 2009
(1) Estimated five-year need—does not include security investment needs.
Each category was evaluated on the basis of condition and performance, capacity vs. need, and funding vs. need.
“Congested highways,
overflowing sewers and
corroding bridges are
constant reminders of
the looming crisis that
jeopardizes our nation’s
prosperity and quality
of life.”
—The 2005 Report Card for
America’s Infrastructure
7. EDUC ATIONAL SERIES
5GLOBAL LISTED INFRASTRUCTURE
FINANCING INFRASTRUCTURE—
A COMPETITIVE IMPERATIVE
Governments have historically played a major role in financing infrastructure, but
the budget and taxation constraints they face are forcing them to consider a capital
markets solution—namely, privatization.
Privatization is not new. In Europe, public/private partnerships have developed and
operated toll roads since the 1970s, and the United States is following suit. We are also
beginning to see privatization of U.S. airports.
Infrastructure’s emergence as a separate investment class, however, only began to
coalesce in the mid-1990s. Recently, private equity capital has become active in
infrastructure finance, with more than $100 billion raised—primarily in Europe—
since 2006.
Private and Public Market Opportunities
There are two primary methods for investing in infrastructure: direct/private
investments and listed (publicly traded) securities. The latter has a total global market
capitalization of more than $2 trillion.(1)
A portfolio of listed infrastructure securities
provides several benefits: daily liquidity, diversification potential, transparency and the
discipline of the public markets’ corporate governance model.
Two Ways to Invest in Infrastructure
Direct/Private Investments Listed Securities
Nature of Investments Active investment in a few projects Exposure to broad market
Minimum Investment High Low
Expenses Moderate to high Low to moderate
Liquidity
Low: Investments are usually locked
up for a certain period
High: Investments trade on an
exchange and can be liquidated easily
Access
Low: Funds are usually open only to
qualified or institutional investors
High: Securities can be bought in the
open market
Diversification
Low to moderate: Funds can
diversify,but there are due diligence
and time constraints
High: A portfolio may include
different infrastructure sectors and
countries
Source: Standard Poor’s
(1) Macquarie Global Infrastructure Index
Governments are
increasingly comfortable
with infrastructure
privatization.
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EDUC ATIONA L SE RIE S
6
A WORLD OF OPPORTUNITY
Utilities comprise by far the largest segment of the infrastructure universe on a
market cap-weighted basis. But because some investors prefer a heavier weighting
in non-utilities, UBS created the UBS Global 50/50 Infrastructure Utilities Index,
a managed index that is equally weighted between utilities and infrastructure and
contains 100 companies in developed markets.
Universe by Sector
UBS Global 50/50 Infrastructure Utilities Index
At December 31, 2009
Index characteristics subject to change.
1% Water
4% Gas Pipelines
2% Ports
16%
5% Airports
5% Gas Distribution
11% Railways
17%
39%
Communications Infrastructure
Toll Roads
Electric
Geographic Diversification
Region/Country
% Weight
in Index Region/Country
% Weight
in Index
United States 28.7% Canada 2.4%
Japan 16.5% Portugal 1.7%
France 15.3% Hong Kong 1.5%
Germany 7.1% Netherlands 0.9%
Spain 6.8% Korea 0.9%
Australia 6.1% Other Europe 0.6%
United Kingdom 5.8% New Zealand 0.5%
Italy 5.3%
Source: UBS Global 50/50 Infrastructure and Utilities Index at December 31, 2009
Index characteristics subject to change.
9. EDUC ATIONAL SERIES
7GLOBAL LISTED INFRASTRUCTURE
How Global listed Infrastructure Securities
May Benefit a Portfolio
Outperformance by an Alternative Investment Sector
Infrastructure company earnings are generally regulated and predictable, with rate
increases often tied to inflation. They may carry a yield that is higher than U.S.
Treasurys and high-grade corporate bonds, but with less volatility than the broader
equity markets.
A Pure Country Play
Investing in global infrastructure is an efficient way to participate in a country’s or
region’s growth. For investors seeking geographic diversification, it is as pure a play on
a local economy as there is. (Please note, however, that diversification cannot ensure
profit or protect against loss in a declining market.)
Global Listed Infrastructure Returns Compared With Other Asset Classes
Total Returns
1 Year 3 Year 5 Year 10 Year
10-Year
Standard
Deviation
Global Infrastructure(1)
19.1% -2.7% 7.5% 8.7% 15.7%
Global Stocks(2)
30.8% -5.1% 2.6% 0.2% 16.6%
Global Bonds(3)
1.9% 8.1% 4.6% 6.7% 7.5%
Source: Zephyr StyleADVISOR at December 31, 2009
(1) The UBS Global 50/50 Infrastructure Utilities Index tracks a 50% exposure to global developed market utilities sector and a 50% exposure to global
developed market infrastructure sector.The utilities sector excludes the sub-sector generation utilities.The index is free-float market capitalization weighted
and is reconstituted annually with quarterly rebalances.
(2) The MSCIWorld Index is a free-float-adjusted market capitalization index that is designed to measure global developed market equity performance.
(3) The JP Morgan Global Government Bond Index is the most widely used benchmark for measuring performance and quantifying risk across interna-
tional fixed-income bond markets. Unlike common stocks and other equity securities, government bonds are obligations of the respective issuing country and
are generally backed by the full faith and credit of that country.
Pastperformanceisnoguaranteeoffutureresults.Performanceoftheindexespresentedaboveisforillustrativepurposesonlyandisnotrepre-
sentativeofanyspecificsecurity.Investorscannotinvestinanindex.
Master Limited Partnerships—
A Way to Access Energy-Related Infrastructure
Master limited partnerships (MLPs) are publicly traded, tax-efficient limited
partnerships whose investment activities are limited to natural resources,
commodities and real estate. Over the last five years, many utility and energy
companies have divested oil and gas pipelines to energy infrastructure MLPs,
which, due to the stability of the underlying assets, offer attractive yields, long-
term growth and predictable cash flows. MLPs also feature low commodity
price sensitivity and established franchises with high barriers to entry. The
strong demand for new pipeline infrastructure in North America is expected to
drive future demand for MLPs, which currently have a market capitalization of
$115.4 billion.(4)
(4) As measured by the Alerian MLP Index, a composite of the 50 most prominent energy master limited partnerships, as calculated by Standard Poor’s.
Therecanbenoguaranteethatthemarketforlimitedpartnershiptrustswillcontinuetodevelopovertime.
Listed infrastructure
has historically
provided attractive
risk-adjusted returns.
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EDUC ATIONA L SE RIE S
8
9Correlation of Global Infrastructure Stocks to Other Asset Classes
Ten Years Ended December 31,2009
Global
Infrastructure Global Stocks Global Bonds
Global Infrastructure(1)
1.00
Global Stocks(2)
0.81 1.00
Global Bonds(3)
0.31 0.13 1.00
Source: Zephyr StyleADVISOR
(1) The UBS Global 50/50 Infrastructure Utilities Index tracks a 50% exposure to global developed market utilities sector and a 50% exposure to global
developed market infrastructure sector.The utilities sector excludes the sub-sector generation utilities.The index is free-float market capitalization weighted
and is reconstituted annually with quarterly rebalances.
(2) The MSCIWorld Index is a free-float-adjusted market capitalization index that is designed to measure global developed market equity performance.
(3) The JP Morgan Global Government Bond Index is the most widely used benchmark for measuring performance and quantifying risk across interna-
tional fixed-income bond markets. Unlike common stocks and other equity securities, government bonds are obligations of the respective issuing country and
are generally backed by the full faith and credit of that country.
Price-to-Earnings Ratios Relative to Long-Term EPS Growth Estimates
Price-to-Earnings
(P/E) Ratio(4)
Projected Long-Term
Earnings per Share
(EPS) Growth Estimate
P/E Relative to
Long-Term EPS Growth
Airports 20.6x 9.3% 2.2x
Ports 15.1x 17.4% 0.9x
Toll Roads 15.2x 12.9% 1.2x
Utilities 13.9x 10.0% 1.4x
Sources: Cohen Steers; Citigroup Global Markets
(4) A valuation ratio of a company’s current share price compared to its per-share earnings calculated as market value per share/earnings per share (EPS);
one-year forward estimate.
Low Correlation With Stocks and Bonds
Listed infrastructure securities have historically exhibited a low correlation to stocks
and bonds. Correlation is a statistical measure of how two securities move in relation
to each other. A correlation of +1 means the securities’ returns move perfectly in
tandem; a correlation of -1 means the returns move in opposite directions. If the
correlation is zero, the securities’ movements are considered to be random.
Attractive Valuations Relative to Projected Growth Rates
Global infrastructure companies’ earnings growth has benefited from healthy sector
fundamentals and industry reforms. For example, global utilities are expected to
post annual earnings per share (EPS) growth that exceeds their historical 2% to 3%
average, yet they are trading roughly in line with historical valuations.
With its steady
risk-adjusted return
profile, it is our belief
that infrastructure
should be viewed
as a core holding
in a diversified portfolio.
