1. Global Listed Infrastructure
An Asset Allocation Recommendation
1
Prepared by
Disclaimer: This is a purely hypothetical situation created by AG Consulting for marketing purposes only.
Sources of Data: All data is publicly available mainly from Rreef, UBS, Lazard, Morningstar, Nuveen, Troweprice,
S&P, MSCI, Cohen & Steers, Probitas Partners, Pension Consulting Alliance, Dow Jones

2. 2
Introduction
What are Real Assets?
• Real assets is an investment class that comprises physical assets such as land, forestry,
and commodities
• These are fast becoming mainstream among institutional investors
• Attractive qualities such as inflation protection, low correlation & volatility have won
them popularity
• Institutions have easy access to these due to their long time horizons and ability to
withstand illiquidity
• However real assets are less accessible to regular investors
• As they’re available via private equity and related funds
• However, recent developments have made it easier to invest in some types of real
assets
• Global Listed Infrastructure, a subset of real assets, has seen growing interest and
looks like an attractive investment option
• Global Listed Infrastructure refers to publicly listed companies that are engaged in
developing and operating infrastructure projects like water utilities, sewage
processors

3. 3
Introduction
Possibilities for RIA Clients
• There has been a marked increase in listed infrastructure focused fund offerings by
prominent players
• Can provide an entry point for investors
• Considering the exceptionally low interest rate scenario currently, infrastructure
might be a good alternative to fixed income
• For income, low volatility & correlation
• But it remains more suitable for larger, diversified clients (>$1mn)
• As it requires more client education and sophistication
• Nonetheless should be monitored and considered as it will become more accessible
• The table below shows the fund families currently offering such funds:
Companies Offering Infrastructure Funds
T Rowe Price Fidelity J. Hancock
Columbia Lazard Nuveen
Mrg. Stnly. C&S Frnkl. Tmp.

4. 4
What is Infrastructure
Characteristics of Infrastructure
• Monopolistic in nature with high barriers to entry
• Serve essential needs of people
• Heavily regulated by government and regulators
• Long term and stable operations
• Utilities (water, gas, power)
• Transport (railroads, airports, turnpikes)
• Communications (carriers, towers)
• Energy (pipelines, storage)
• Clearly infrastructure is what advisors already identify with conservative portfolios
• These industries also have bond-like characteristics
Industries Exhibiting These Characteristics

5. 5
What is Infrastructure
Current Investments in Infrastructure
• Investors already get infrastructure exposure through municipal bonds
• Bonds revenue linked to say sewage processing plants or roads
• The S&P500 also has some stake in aforementioned industries
• 2-3% in utilities and telecommunications
• 10% in energy and industrials (incl. transport)
• However exact composition consists of companies that don't quite fit infrastructure
criteria
• E.g. Exxon Mobil for energy and GE for industrials
• Allocation to transport and pipelines is very little
• Also, S&P500 is US only even though listed infrastructure is based mostly in Europe
and Australia
• For example, Australia is heavy on ports and toll roads, Canada on pipelines
• With all these points in mind, a specific approach is necessary for the listed
infrastructure space

6. 6
What is Infrastructure
Outlook for Infrastructure
• Secular outlook for infrastructure definitely positive
• More importantly private sector involvement is increasing in this otherwise
government dominated space
• Decreasing state and local government spending has created shortfall in
infrastructure projects such as parks and libraries
• Most of the $800bn stimulus in 2010 didn’t touch infrastructure
• So catch up effect will occur when general budgets rise across the board
• Similarly Europe faces a big backlog of infrastructure projects
• Investment in infrastructure fell 21% in 2011 (YoY)
• Especially Portugal, Spain and Greece
• American Society of Civil Engineers predicts US needs $3tr in infrastructure spending
by 2020
• Comparable figure for Europe- $2tr, Australia- $700bn
• McKinsey estimates world infrastructure spending will rise 60% in the next compared
18yrs. compared to the previous 18yrs.

7. 7
Alternative to Fixed Income
Problems with Bonds
Commonly Suggested Bond Alternatives
• Given imminent rise in interest rates, investors can lose more in principal than could
earn in coupons
• A 30yr Treasury has a duration of 18yrs meaning it can fall 18% for a 1% rise in interest
rates (8% for 10yr T-Bond)
• Compared to their 4% and 3% yields these are outsized risks indeed
• Short-term Treasurys, foreign debt, mortgage securities, dividend paying stocks and
alternatives like hedge funds are currently being used as substitutes
• Institutions are already making a noticeable move towards alternatives
• But access to alternatives more difficult for regular investors
• However global infrastructure can be a bridge between alternatives and equities
• It has some attractive characteristics that make it appealing as a bond alternative
• E.g. Its 4% yield is comparable to long-term bonds

8. Listed Infrastructure: Advantages
• Composition of listed infrastructure is
very defensive
• Utilities comprise 30-90% of most
benchmarks, MLPs: 0-30%
• So infrastructure should exhibit lower
forward volatility and return
• Wide variation among benchmarks
gives choice to advisors in fund
selection
• They can use own expectations to
overweight certain sectors
Conservative Nature
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Inflation Hedge
• Inflation is a common concern given
the pace and scope of monetary
expansion by the Fed
• Infrastructure assets are often directly
linked to inflation
• This is probably the most important
characteristic of infrastructure
• Traditional inflation hedges like TIPS &
commodities not suitable for everyone
due to taxation & volatility issues
0%
10%
20%
30%
40%
50%
60%
Energy Utilities Transport Telephone Others
Sector Breakdown,by Index
MSCI
Dow Jones
S&P
Dulles Greenway CPI+1%
Indiana Toll CPI
AUCAT (Spain) CPI
A4 (Italy) CPI*70%
Sanef (Spain) CPI*70%
Inflation Linkages, Turnpikes

9. Listed Infrastructure: Advantages
• Income is another important
requirement currently
• Often infrastructure projects are
guaranteed a minimum level of
profitability by the government
• This results in stability and surety
• Utilities & MLPs, know to be strong
dividend payers, are already being
used for income
• Monopolistic nature of infrastructure
like turnpikes will ensure stable yields
Income Generation
9
Global Diversification
• This asset class is an aggregation of
global infrastructure assets
• This is important because pure-play
infrastructure companies are rare in US
• But they’re common in Europe,
Australia and Canada
• Emerging markets are allocated only
10% despite their massive
infrastructure requirements
• This is good for keeping volatility low
0%
10%
20%
30%
40%
50%
60%
70%
Americas UK Europe Japan Other
GeographyBreakdown,byIndex
MSCI
Dow Jones
S&P
Dow Jones 3.50%
S&P 4.00%
MSCI World 4.20%
MSCI US 4.00%
MSCI Eur. 5.00%
Dividend Yields

10. Listed Infrastructure: Advantages
• It’s less than 1.0 between the
infrastructure and respective broader
country indexes (both US & EAFE)
• Especially for the US where it is only
0.63
• Of note, correlation with bonds also
low suggesting both assets may not
move together
• However, over 5year rolling periods,
correlation spikes to 80% for the US
and almost 100% for EAFE
Correlation
10
R-Squared
• Another useful way of looking at
degree of similarity is R-squared
• This shows how much of the variation
in infrastructure indexes is explained
by broader country indexes (S&P500)
• Picture looks good here as well with
only 40% of US infrastructure
movements being explained by a
standard index
• EAFE much poorer at 80%
• Over the longer term the picture
deteriorates as well with a 95% R-
squared for EAFE
• But still the US holds up somewhat
better
Eafe Inf. Eafe Std. US Inf. US Std.
Eafe Inf. 1.00
Eafe Std. 0.88 1.00
US Inf. 0.50 0.55 1.00
US Std. 0.74 0.87 0.63 1.00
12 Month Rolling Correlations

11. • Numbers also paint a favorable picture of infrastructure
• Table below shows that infrastructure indexes have lower volatility and
higher returns than their broader country counterparts
• Thus they also have higher Sharpe Ratios
• A higher Sharpe Ratio by itself warrants a strong look into this space
• The graph plots the risk-return for some indexes that illustrate this
Summary Statistics Risk-Return Tradeoff
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MPT Statistics
0.0%
0.2%
0.4%
0.6%
3.0% 4.0% 5.0% 6.0%
Efficient Frontier Points
EAFE Inf.
USA Inf.
EAFE Std.
USA Std.
EAFE Inf. EAFE Std. Eur. Inf. Eur. Std. USA Inf. USA Std.
Average 0.54% 0.49% 0.60% 0.51% 0.33% 0.40%
Std. Dev. 4.48% 5.11% 5.26% 5.60% 4.24% 4.53%
Median 0.86% 0.92% 0.71% 0.89% 0.68% 0.98%
Sharpe R. 0.12 0.10 11.39% 9.17% 0.08 0.09
Min. -16% -20% -20% -21% -13% -17%
Max. 11% 13% 13% 14% 14% 11%

12. • An important observation is that correlation between infrastructure indexes of
different countries is low (US & EAFE and US & Europe pairs it is <50%)
• So it’s possible to have two quite uncorrelated sources of alpha
• Foreign valuations currently lower (PE ratios, beta)
• Also a 50-50 US-EAFE blend significantly improves upon the individual
constituent’s Sharpe Ratios (highlighting the benefits of diversification)
• The adjoining efficient frontier clearly shows the portfolio improvements from
adding infrastructure (enhanced frontier is closer to the NWQ)
Valuation Differential Efficient Frontier
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MPT Statistics
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
15.0% 16.0% 17.0% 18.0% 19.0%
Without
Infrastructure
With
Infrastructure
0
10
20
30
40
50
Utilities Telephone
PE Ratios ofTwo IndustryComponents
US
ex-US
50-50

13. Risks of Listed Infrastructure
• Most infrastructure projects involve
governments and regulators
• So there is a risk of government
instability, dysfunction or unfavourable
regulation by say, limiting the
maximum allowable ROE for utility
companies
• The current delay in approving the
Keystone XL pipeline under the guise
of environmental protection is a case in
point
• Budget constraints can limit spending
on public infrastructure as well
Political
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Investment
• Infrastructure has a short historical
record &new deals are infrequent
• High correlation with broad markets is
probable
• Significant Industry concentration is in
utilities/communications
• Valuations are high currently as
investors chase yield
• Fund offerings in this space are
extremely new (none have more than
5 years of track record)

14. 14
Active vs. Passive Management
Necessity of Active Management
• Generally RIAs can choose between high alpha, high expense active funds and low
alpha, low expense passive funds depending on philosophy
• However for global listed infrastructure an active approach is much more preferable
to simply indexing
• Infrastructure indexes are heavily concentrated in utilities & communications (30%
each) and have too little transport to speak of
• Index’s lack of opportunistic nature will miss the large, one-off deals that characterize
infrastructure
• E.g.- Development of an airport or a pipeline
• Large differences between indexes from different providers makes it difficult to select
optimal the passive fund
• It also makes it difficult to judge fund performance
• The most well-defined infrastructure index, provided by Dow Jones, doesn’t have any
funds tracking it yet
• Most track only the index provided by S&P
• Hence active management beats passive in this context

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Conclusion
Summing Up
• Safe to say that global listed infrastructure can be considered as an alternative to
dividend paying stocks that are currently being used to substitute bonds
• Nature of infrastructure as a global diversifier, strong history, increasing interest
among institutions, and growing acceptance among fund families are positives
• However this space needs active management, strong monitoring & dealing with
unfamiliar situations
Prepared by
Disclaimer: This is a purely hypothetical situation created by AG Consulting for marketing purposes only.
Sources of Data: All data is publicly available mainly from Rreef, UBS, Lazard, Morningstar, Nuveen, Troweprice,
S&P, MSCI, Cohen & Steers, Probitas Partners, Pension Consulting Alliance, Dow Jones