Alternative Investments in Infrastructure and Energy
The term “investment” is often used to refer to financial assets such as securities, cash, and savings accounts, whereas “capital investment” typically refers to real estate investments. (However, it is not incorrect to use these terms the other way around.)
There are also capital investments that have little or nothing to do with real estate. These include renewable energies and infrastructure projects.
Why alternative capital investments?
There are several reasons why alternative capital investments might be worthwhile:
- Security: Asset protection through diversification
- Return: Increased return through potentially lucrative – and therefore possibly riskier – investments
- Sustainability: Acting and/or demonstrating responsibility toward the environment and society
Renewable energies as an alternative capital investment
An investment in wind and solar parks or hydroelectric power plants certainly meets the criterion of “sustainability,” as renewable energy is the future of energy supply – keyword climate change.
An exception would be a large dam that floods an entire valley. China, for example, has around 50 dams that are 150 meters or taller. Nowadays, if dams are built at all, it’s typically in developing and emerging countries. In the U.S., and especially in Europe, such major interventions in nature are no longer considered acceptable.
By the way, dams fall under both renewable energy and infrastructure categories.
Since energy demand is unlikely to decrease in the future, investing in renewable energy also appears reasonable in terms of security. Similar to food, demand is unlikely to collapse even in tough times.
In terms of return, the energy sector – at least for private investors – often lags behind stocks and real estate. These are typically large-scale projects where innovation is not a priority, and the end product, energy, is ultimately a replaceable commodity.
Infrastructure as an alternative capital investment
An investment in infrastructure can be sustainable – or not. Opinions are divided when it comes to dams. In the U.S., and especially in Europe, they are generally not considered sustainable.
Roads and networks – everything that connects and moves – are relatively safe investments. Public entities are often involved, and the end user is typically society as a whole.
In terms of returns, infrastructure does not top the charts. But this is common for such secure investments. The returns are considered stable.
Infrastructure projects often enjoy a strong market position. Competitors can hardly displace them, if at all.
Examples of infrastructure as capital investment
The insurance company Allianz, for example, invests in the following infrastructure projects:
- Fiber-optic expansion in Germany
- Electric grid in Finland
- Sewage tunnel in London
- Parking meters for 36,000 parking spaces in Chicago
Infrastructure and energy as alternatives to real estate and stocks
These two alternative forms of investment are particularly suitable for diversification. However, both sectors are generally less transparent than stocks and especially real estate.
Such projects are large and complex. This makes it difficult for private investors to evaluate them. Investors must therefore be able to rely on the credibility and performance of the provider.