What is an Infrastructure Investment?

Infrastructure investment is seen by many as a highly lucrative type of financial investing. By investing funds in specific infrastructure projects, such as the building or rehabilitation of highways, sewers, waterways, and energy stations, investors not only stand a chance to make money but also benefit as citizens through their contributions to the creation and upkeep of public necessities. Generally a long-term, slow-growing investment, infrastructure is often touted as a good defensive investment, due to its high level of protection from regular stock market fluctuations.

Traditionally, infrastructure development has been the province of government. Many attribute the revitalization of America's economy following the Great Depression to government programs specifically geared toward improving infrastructure, and thus providing jobs. Soaring costs and expansive population growth, however, has made it impossible for nearly any government to fully finance major infrastructure projects in the 21st century. More and more, governments have turned to private investors to provide capital for the development of infrastructure.

One of the reasons that infrastructure investment is considered a good bet is that, for the most part, governments maintain monopolies over some forms of infrastructure. Roadways, for instance, are almost entirely public systems; there are no privatized freeways in most places. As a result, usage fees, such as tolls, are not subject to competition and thus can be higher, creating greater returns for investors.

As with any form of investment, financing infrastructure does involve some risk. Many types of infrastructure investment require a large initial output of funds, meaning that once the money is spent, returns are dependent on the project running smoothly and successfully. With a local economy infrastructure investment, the dangers include the chance that construction estimates were incorrect, that delays can cause costs to rise, and even that the project will run out of money before completion. In foreign investments, there are additional risks of currency exchange rates changing the value of the investment, and unstable social elements, such as a war or regime change, disrupting a project.

An infrastructure investment can be made in several different ways. One common way is through the purchase of bonds released to fund a specific project, such as a port renovation or the construction of a public university. Investing in mutual funds can allow investors to sell back shares in the case of a project downturn, which can help guard against the risk to some degree. Many larger funds, such as company-wide retirement or pension plans, may also invest some of their holdings in infrastructure.