Highways as alternative investments
Aug 26th, 2009 | Filed under: Hedge Fund Industry Trends, Today's Post
Your humble scribe has driven over 5,000 miles (over 8,000 kms) this summer to various family and business events. At a very rough estimated cost to build of about $2 million per lane-mile, I’ve covered $40 billion of asphalt in the past 2 months.
Yes, roads are a big business. But do they represent a big opportunity for investors? An interesting report by KPMG’s North American infrastructure group says “yes”. The report states what most Americans (and, for that matter, Canadians and Mexicans) now realize, that “Existing funding mechanisms, which primarily consist of user fees and taxes, have been insufficient to cover the infrastructure funding needs.”
In 2006 (the most recent data available), the United States spent over $100 billion on roads and with infrastructure spending playing a key role in economic stimulus packages, KPMG estimates that the amount spent on US roads will increase by 3% per annum between 2009 and 2013. That’s a total of nearly $600 billion over this period.
Enter the institutional investor. The report highlights Virginia, Texas and Florida as states that have led the way when it comes to using private investment to build roads. Indiana was most active in using private funds for maintaining existing roads. KPMG forecasts a “second wave” of states that will soon turn to private capital for road work. This includes: New York, Michigan, Nevada, California, North Carolina, and Georgia.
The blue states in the chart from the report (bel0w) represent the biggest opportunity for alternative investors, while the pink states represent the smallest, according to KPMG. More…
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Interesting article. Given the current economic conditions infrastructure investments will be a win-win for both the investors and the government. It represents stable cash flows over a longer period of time. Also helps in stimulating economic activity.