Infrastructure investing, putting money into so-called “public infrastructure” projects like mass-transit, toll-roads, renewable energy plants, bridges, and similar endeavors, was once reserved for institutional investors and corporations with billions of dollars on hand.
Now, thanks to the crowdfunding revolution in the financial world, where masses of small players pool their funds on a platform and buy stakes in huge projects, ordinary investors can participate in infrastructure investing.
There are two ways to do this. First is to use the crowdfunding model from the real estate market and apply it to huge public infrastructure projects. In 2015, a platform called InfraShares was founded for this specific purpose. The company lets community members, or anyone with a willingness to invest, take part in broad-based infrastructure project via direct investment.
Infrastructure Investment Trusts (InvITs)
The second way to get involved in this exciting new kind of financial speculation is through an “infrastructure investment trust.”
Also known as InvITs, infrastructure investment trusts are taking the international investment world by storm. An invention of an Indian financial analyst, and recently approved by that nation’s government, these trusts are drawing billions of dollars into the India’s cash-hungry infrastructure economy.
Right now, the biggest InvITs are India-based, but the experiment has proved so successful that this new financial creature will soon have a worldwide presence. There are already “infrastructure” ETFs offered by all the big players on Wall Street, but nothing like this, where ordinary folks can place their money directly into a single, huge project like a new bridge or mass-rail system.
For cities and governments that have difficulty raising funds through bond issues and tax hikes, the private crowdfunding mechanism has proved to be a blessing. India has already raised billions for new bridges and the renovation of hurricane-ravaged cities via InvITs.
How to Get Started Investing in Infrastructure
InfraShares: Visit the platform at InfraShares.com and sign up for an account. The process is a bit different from most of the well-known crowdfunding platforms out there. After you browse through the candidates for funding and choose your favorites, you’ll have to decide how much you want to invest. After that, the project’s “funding goal” will go up by whatever amount you put in. Once the goal is reached, whenever that is, you’ll own a proportionate share of the project. If the goal is not reached within the stated time period, you will receive 100 percent of your investment back. All money is held in escrow until a project gets the green light.
Minimum investments are different for each project, but the average is between $100 and $500. Note that these investments are not liquid, like shares of stock, and must be held until the “hold period” has elapsed. Investors can choose projects with short hold periods, 6 months for example, or long ones, up to 5 years.
Many of the InfraShares projects pay monthly or quarterly dividends or returns on equity, but principal is never returned until the project is finished. There can be a substantial increase or decrease in the value of a principal share/investment over the course of the infrastructure project, so investors stand to gain or lose depending upon how the project performs.
Indian InvITs: The Indian government just approved this kind of fund-raising in mid-2017, so the funds are new. Two of the largest players in this fresh niche are Matthews India Investor (MINDX) as well as an iShares product called MSCI India ETF (INDA). Expenses, annually charged, are 1.12 percent for the Matthews fund and .68 percent for the iShares ETF.
The Advantages of Investing in Infrastructure
InfraShares: For investors who want to take advantage of potentially high-return projects that are backed by national governments or municipalities, InfraShares is a good way to get involved in this niche. For successful projects, there can be significant periodic returns as well as a big payout at the time of redemption.
InvITs: Most of India’s national government and local government projects are highly profitable and have performed well in the short time this type of funding mechanism has been in place. Investors who never were able to get into a developing nation’s growth now have the opportunity via one of two funds, and perhaps many more in the coming months. There could probably be no better candidate for infrastructure investing than India, with its booming economy, its massive workforce, and the nation’s current status as one of the world’s fastest-growing economies.
Some global financial experts are saying that “India has become what China once promised to be.” In other words, the largest capitalist nation on earth, India, doesn’t have the restrictive government controls that are everywhere you look in China. Other financial writers are calling the current era in India, “The Asian Miracle.” Indeed, India is living up to all the hype that China enjoyed two decades ago but never achieved. With the new InvITs to help fuel the economic engine of this new miracle, it looks like India will be able to do what China couldn’t.
The Potential Challenges
InfraShares: There can be outsize risk associated with some projects, so investors need to do their due diligence, even though all infrastructure projects are pre-screened by the platform’s team of advisors. Some projects have very long hold times and might not pay any periodic return, which means the owner of the note is left holding it for up to five years. Note that this time disadvantage can be avoided by choosing short-term projects of 6-months or 1 year in length.
InvITs: Because the Indian government just approved this financing method less than a year ago, and even though it is extremely popular with global institutional investors, it might be best to wait until several of the larger projects are completed and the system has more of a track record.
The Future of Infrastructure Investing
It seems like there’s a new wrinkle in the investing world every week or so, but this development is truly a landmark development because it is a win-win situation for individual investors and for governments that sorely need cash for vital projects. Sometimes the tax revenue just isn’t enough, and bond issues might fail to pass a public vote. That means infrastructure private money could be the only answer for cash-strapped nations, cities and states that have to get back on their feet after an earthquake, hurricane or other natural disaster.
InvITs and crowdfunding platforms like InfraShares are a welcome addition to the investment landscape.