Infrastructure Capacity Overestimated


    Investors may be overestimating the capacity of infrastructure as an asset class to meet return requirements, says Deutsche Bank. The “supposedly attractive risk-return profile” of infrastructure projects is “illusory,” it says. While there is an estimated $1 trillion funding gap for infrastructure due to cuts in government spending in many developed markets, “the vast majority of infrastructure is a public good that does not offer a viable revenue model to cover costs let alone provide adequate returns.” The few revenue robust projects have little difficulty attracting capital and for these projects the problem is too much money chasing too few opportunities. In addition, as projected returns are based on cash flows and “appraised values,” the actual returns available from infrastructure are very uncertain.