1. lvmreader said...

One of the best articles I have seen on this site. Absolutley brilliant @sold2rent.

Thursday, March 29, 2007 12:36PM

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3. monty said...

Yes, great article but it does raise more questions such as "so where do I put my money now?" The obvious answer is hard assets but thanks to the last few years of (nearly) free money there isn't an asset class that hasn't been affected (ouch! - double negative!!) Everything is expensive and overbought and that includes gold, Mr Capitalist.

Not having ever lived in a non-fiat currency economy, I struggle to come to terms with the concept. Undoubtedly the world would look like different place had the UK stayed on the gold standard back in 1931 but how different? Assuming that WW2 would have happened what about the phenomenal growth worldwide following that? Could that have taken place without a fiat currency? A fiat currency is not a reliable store of value. In fact, it is a very volatile one but it has been the grease for the machine that is the global economy. Less or no grease and the machine doesn't work as well.

Thursday, March 29, 2007 02:26PM

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5. lvmreader said...

Relational Investing

Follow the (Apex) Money

Where to put money, note what the Hedge Funds and Private Equity Funds are doing.

http://www.ouce.ox.ac.uk/research/spaces/wpapers/wpg06-17.pdf
"The role of time is crucial, as hedging against long-terminflation is the overriding rationale for investing in such infrastructure assets"

Thursday, March 29, 2007 03:27PM

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7. lvmreader said...

Arthur Rakowski, Executive Director, Macquarie Bank Group, London, answers this week's 101 on infrastructure funds

1-What is an infrastructure fund? What are the main categories of infrastructure funds?

An infrastructure fund is a managed vehicle through which investors gain exposure to the underlying characteristics of infrastructure assets. Infrastructure is emerging strongly as an asset class which can be particularly well suited to pension funds and other investors with a long-term outlook. Infrastructure assets tend to display comparatively stable, long-term real returns and provide a good match for long-dated liabilities.

They invest in private infrastructure companies, but the funds themselves can be listed or unlisted. For example, Macquarie has been investing in infrastructure for more than a decade and now manages over 20 infrastructure funds around the world. Half of these are listed on the stock exchange, with investors from pension funds and other institutions to retail investors. The rest are unlisted funds in which the investors are largely pension funds and other institutions.

The funds tend to either specialise in one class of infrastructure – for example invest only in airports or only in toll-roads – or they invest across various infrastructure sectors which meet specified investment criteria – for example the Macquarie European Infrastructure Fund has investments from water and gas utilities through to rail. In addition, they can have a global or regional focus.

Infrastructure assets can include telecommunications and broadcast infrastructure, utilities, toll roads, airports and other transport infrastructure. Fundamentally, infrastructure assets are distinguished by displaying the following key characteristics:

· Provide essential community services
· Have strategic competitive advantage
· Have predictable long-term cashflow

These characteristics lead to the investment benefits outlined below.

2-What is the objective of investing in this type of vehicle for an institutional investor? Is it a good diversifier? Why?

Infrastructure assets display unique characteristics. Their essential and long-term nature, combined with strong competitive position, leads to stable and predictable consumer demand and cash generation. These assets tend to have a high fixed capital base with comparatively low operating costs - on average of between 10% and 30% of revenue. Along with the long-term operating licence and predictable demand, often in a regulated environment, this allows the manager to forecast cashflows with accuracy.

Infrastructure assets have a low correlation to equity markets and other main asset classes. For this reason, it can provide valuable diversification in an investment portfolio. It also provides a good match for the long-dated liabilities of pension funds due its long-life and inflation protected returns. This stability in operating cashflows can reduce the overall volatility of returns for investors and, in our experience, investors are finding this combination of sustainable yields, lower volatility and inflation-linked returns increasingly appealing.

By investing in infrastructure through a specialised fund, investors not only gain access to infrastructure as an asset class, but they benefit from the expertise that the fund manager can bring to asset selection and management.

3-What are the main downsides of this type of fund for an investor?

· As mentioned above, cashflows from infrastructure tend to be relatively stable and predictable, and therefore lower risk. They do not suit high risk / high return investors.
· While unlisted funds often move toward a listing, investors looking for immediate liquidity may find listed funds or direct investment in infrastructure equities more attractive.
· Poor asset selection can lead to disappointing results. Investors should satisfy themselves that their fund manager is capable of superior asset selection and asset management when compared to both other funds and to direct investment.
( Arthur Rakowski, Macquarie Bank Group )
( 20/02/2006 )

Thursday, March 29, 2007 04:08PM

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9. nearly30 said...

Yes is a good article - if you want a really really really interesting watch (it will blow your socks off):

Go to You Tube and loof up Dr. Albert Bartlett - there are 7 lectures on the exponential function.

This might work :http://www.youtube.com/watch?v=kaKaH2UTsNE

Thursday, March 29, 2007 10:26PM

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11. sold 2 rent 1 said...

I just watched the full set of 7 parts. Amazing stuff

It makes complete sense for the way we tackle climate change should be through population growth.

We are all completely doomed sometime in the next 100 years.
The only way we can achieve a stable (short term) society is through growth of population (either immigration or bithrate increase). This is needed for the whole pension system to work and to stop our economies from overheating.

At some point this huge house of cards is going to tumble.
And it will be more than a recession - more like a new dark age

Friday, March 30, 2007 12:05PM

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13. monty said...

Chilli

I think that's a fair question which requires a fair answer.

The problem I have with inflation is that it is so readily fudgible. The official rate (CPI) is now 2.8%. We know that's not the case because our household inflation rate is double digits. Inflation may be quantified by a basket of goods and "controlled" through interest rates but it is always created through excessive money supply. The government (uber debtor) uses this to their advantage. Inflation remains, above all, the stealthiest of taxes.

So, to answer your question Chilli, it does matter. How do you plan to fund your retirement? It's all very well if your salary is inflation linked and you've geared yourself up to the eyeballs on the mortgage but at some point you will retire and that income stream stops. Unless you work for the civil service and have your pension paid by, um, inflation and taxation then your retirement is paid out of your pension savings. This little pot gets smaller and smaller every time you dip into it and what you take out buys less and less every time the government prints more money. There's also the problem of the less well off who do not have access to any form of leverage (mortgages.)

"Ah", you may say, "my pension will be invested in an inflation beating fund." That may well be, but beating inflation requires leverage and leverage implies risk and risk needs to be insured which is a cost. You get poorer anyway. I really hope you're wrong and a Coke does not end up costing $50m. I rather enjoy the stuff.

Friday, March 30, 2007 02:26PM

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