Infrastructure investment funds are getting popular globally for financing infrastructure projects, operations, and maintenance. In the USA, there are many infrastructure investment funds; you can learn about this approach for infrastructure investment here.
Infrastructure Investment Trusts USA
American infrastructure is facing financing issues in infrastructure development and increasing demands. One of the investment solutions for infrastructure is infrastructure investment trusts (InvITs), where companies put their assets together into these trusts, and it works like a mutual fund.
The InvITs are formed to construct, finance, operate, own, and maintain the infrastructure projects, as the trust is a pooled investment vehicle. Investors can buy units or assets in this trust and have the shares in the assets’ income without actually managing or being the owner of the asset directly.
The InvITs enable asset owners to get back the money they spent and use it for the new projects; it’s a new way to recycle capital and keep the infrastructure finance going. In the USA, the IIJA 2021 law has invested in infrastructure improvement.
The US also has infrastructure investment trusts to bridge the investment gap, mitigate the risk, and monetize the infrastructure assets, such as Infrastructure REITs, closed-end infrastructure funds, and others.
What are the different Infrastructure investment trusts in the US?
In the USA, you can find the investment for the infrastructure projects through various infrastructure trusts, such as:
- Infrastructure REITs (Real Estate Investment Trusts):
- It is a real estate investment fund that manages and owns the assets, such as telecom fibres, energy pipelines, fibre optic cables, rather than buildings and other infrastructure.
- REITs are often traded on the US exchanges, and the companies have to follow certain guidelines, such as they should give 90% of taxable income to the shareholders.
- American Tower, Crown Castle Inc., and SBA Communications are some of the famous REITs.
- Close-End Infrastructure Fund Trusts:
- The closed-end infrastructure fund trusts are a type of investment fund that allows investors to buy closed-end funds, and they directly or indirectly invest in infrastructure assets.
- The investors diversify their portfolio and invest in the infrastructure projects without actually buying the assets.
- BlockRock Utilities and Brookfield Infrastructure Partners are famous US Infrastructure investment trusts.
How do Infrastructure Investment trusts work in the USA?
The infrastructure investment trusts’ objective is to lower borrowing costs and tap into different pools. The investors can diversify their portfolio through the infrastructure investment trusts. These trusts function like the REITs or mutual funds; you can understand their functioning through the following points:
- Infrastructure investment funds own infrastructure assets like fibre networks, energy, roads, and others, and generate revenues.
- The trust appoints stakeholders for the trust and follows the US regulations for the InvITs.
- The investor purchases the units in the trust, contributes to the infrastructure assets capital, and provides the needed investment.
- The investors get the income generated through infrastructure assets through regular payments, and the income is distributed as dividends or interest.
The investment in the InvIT mode is monetized through the infrastructure project revenue; it’s like investing in a company involved in the infrastructure sector.
What risks are managed through the Infrastructure Investment Trusts?
The infrastructure investment trusts have managed to mitigate the following risks for the infrastructure financing as well as for the investors:
- Credibility: The trust invests not only in the infrastructure project but also looks into its operations to mitigate the risks and manage its performance to use the revenue later on.
- Stable Income: The trusts bring stable income for the investors, which encourages them to invest in the infrastructure assets. The trusts typically have long-term contracts and comply with regulations, hence they ensure income.
- Liquidity risk: The InvIT is the same as an equity investment, where you sell the equity investment, making this investment tool highly liquid and easy to exit or sell, which grants the freedom to investors to get the best return on their investments.
- Concentration risk: The pooling of revenue from multiple infrastructure assets mitigates the concentration risks and grants an opportunity to grow the investment as the projects operate.
- Development risk: The Infrastructure investment trusts mitigate the risk involved in the development, revenue-generating, construction risk, and operating assets for the investors.
- Inflation risk: The infrastructure investment trusts reduce the inflation effect from the infrastructure assets’ returns for the investors. This attracts investment to the infrastructure assets and strengthens the funding.
Infrastructure Investment trusts are a great way to reduce the risk for the investors and invest in the infrastructure sector. However, as this approach is getting popular, it needs to be regulated well, and standards need to be set.