It doesn't matter what kind of investing you do. If you want to become a good investor, you have to focus on return on investment or ROI. ROI is a crucial benchmark that will enable you to maximize the return you get for the hard earned money you are investing in any kind of project.
A lot of finance companies have traditionally steered clear of infrastructure projects. Now, they did this not because there's something fundamentally risky or dangerous about such projects. They did this out of practicality.
Why? For the most part, a lot of infrastructure projects at the local county and municipal level in the United States, are funded by bond offerings. This is where Wall Street comes in and advances the cash and in exchange, they get the right to issue paper to the public. This paper is a promissory note backed up by local municipal or state taxes. This is called municipal funding.
For the longest time, this is one of the most rock solid investments bond investors could ever make. How can you go wrong? After all, if somehow, someway the deal goes off and the loan doesn't get paid, there will always be taxation.
In other words, you can always rely on the fact that the state. I'm talking broadly here. It can be a local, municipal, regional county or a form of state entity can raise taxes. This is always been the go-to solution for all sorts of state projects, least has something to do with infrastructure.
But all that changed starting in the 1970's. In the 1970's, a lot of cities started falling under financial stress because they simply borrowed too much. There was too much inflation.
The US economy wasn't growing too much and at that point, people started thinking more creatively. People started paying attention to alternatives to debt financing.
It reached the height point when a lot of bond holders we're basically saying that the bonds were not good deals. So, a lot of the interest rates involved for infrastructure public bond funding became very oppressive.
This created a lot of opportunities. Finance companies started seeing that the ROI for infrastructure projects might be worth it. This can lead to semi-private all the way to fully private financing.
The short answer to the title of this blog post is yes.
We have reach a point in financing history where the ROI calculations of finance companies as far as infrastructure projects go, has turned positive. So, it is no surprise that more and more private players are funding infrastructure projects.
Now, of course, this takes place in a low interest environment. It's anybody's guess how long this will persist because if you look at the low interest rates in the United States, it should become bondedly clear to you that the timeline for that is relatively recent.
It's only since that 90's that we've had a low interest climate in the United States. If you look at previous decades, interest rates north of 10%. I'm talking two-digit interest rates here. We're not all that uncommon.
In fact, they were assumed. People are all too comfortable with them. If you were to tell them that there will be a time when interest rates will fall to less than 5%, they probably would have laughed you out of the room. But now that the rules have changed and a lot of private financing companies see the beauty in funding infrastructure projects.