“You never know what kind of impact you can have on someone by just saying hello.”
-Manti Te’o (former NFL linebacker)
In the first two parts of this series, we considered our “why?”, road-tested some hypothetical core values, and clarified the true meaning of impact investing (i.e., investing in a way that helps society and humans flourish). Today, we’ll contemplate the impact of our actions and (finally) some Alts that may align well with impact investing – namely infrastructure. Here we go!
The impact of our actions
To the point of today’s Manti Te’o quote, I’ve had a quick “hello,” and a smile from a total stranger make my day. Being mindful and kind within our human interactions are easy ways to have a profoundly positive impact on the world around us. I hope these are concepts my kindergartener daughter is already practicing, but it’s worth a reminder for us adults, as not doing so can have adverse consequences.
Case in point: recently, I was wrenched out of a deep sleep at 1:12 am by a car (specifically a Dodge Challenger SRT Hellcat) tearing through our neighborhood. What an unnecessarily loud car! Seriously. It’s so loud. And it, unfortunately, wasn’t just a one-and-done adventure. The driver did a couple of laps to ensure I was WIDE awake, fishtailing and sliding around the street corner outside our bedroom windows (as our video footage would later show) to ensure he (or she) took the checkered flag in whatever self-imposed race was underway. Listen, I can also appreciate that it’s probably fun to drive a loud, fast modern-day muscle car, but perhaps the wee hours of the night in a residential neighborhood aren’t the best time and place to let one’s Steve-McQueen-Bullitt-chase-scene fantasies play out (and, yes, I know it was a Dodge Charger – not Challenger – in the movie, but the analogy holds up just fine).
Anyway, I couldn’t get back to sleep for about two hours. At first, I was angry at the person for being such a thoughtless human (the very PG version of my sentiment). But, if I’m being honest, the real reason the Hellcat kept me awake was because I started to think about how many times my teenage self and my teenage friends did the same types of inconsiderate things (so many times I couldn’t even offer an estimate). Not only did we probably wake people up at night driving too fast or too loudly, but we likely also frightened other drivers daily – just via our usual approach to navigating the roadways. Our objective certainly wasn’t to hurt anyone or anything. Instead, it was always to get from point A to point B as quickly as possible while not getting pulled over or getting into an accident (our “benchmark,” if you will).
What kept me up after the roar of the Hellcat was long gone was deep remorse for never having realized all of the potential collateral damage. How much sleep have people lost because of my idiot self 25 years ago? That’s a question I asked myself decades too late, in a sleepless moment at age 44. Ugh.
Turn that frown upside down.
Okay, now that we’ve covered more of my shortcomings, let’s focus on making positive progress beyond just trying to be decent human beings in our day-to-day interactions. As we discussed in Part 2, we can have a positive impact via our investment choices, and there are a lot of tradeoffs involved. Continuing in that vein, let’s consider an asset class that sits at the crossroads of Alts and impact investing and gets everyone excited: infrastructure.
We started at the bottom; now we’re here.
What is infrastructure? I’m glad you asked. Per Wikipedia, it’s “the basic physical systems of a business, region, or nation and often involves the production of public goods or production processes,” and it stems from the French words meaning “below building.” The “soft” side of infrastructure includes “healthcare, financial institutions, government offices, law enforcement, and education.” Thus, what we’re focused on for our purposes is specifically “hard infrastructure,” but I’ll just refer to it as infrastructure.
In short, infrastructure is the general framework that allows us to live our lives – you know, the vital things we’re so fortunate to take for granted daily, like water, sewer, electricity, roads, bridges, tunnels, mass transit, cable, WiFi, cell service, air travel, etc. Nothing sets the foundation for prosperity and human flourishing like good ol’ infrastructure (yes, along with free markets and political stability).
What’s new is old.
Sorry to burst your teeny bopper’s rizz bubble, but their “new” big pants and Champion sweatshirts were originally cool in the early ‘90s. Infrastructure dates back (a few) years before those days when my pants completely covered my shoes, with transportation having been part of the agenda of Alexander Hamilton (thanks to our client, Jon S., for the tip!), and centuries before that in the form of aqueducts, canals, and roads. I’m sure there’s a whole chicken-or-egg can of worms one can open on this topic.
Thus, the infrastructure itself isn’t new, but the solutions that serve as the backbone of our society today have evolved significantly, and – music to our Alt-Blend ears – the ways for investors to access those solutions are constantly improving. Infrastructure is an asset class that inherently lends itself to public (aka) government or institutional investment. It’s big, slow, expensive, and (perhaps even) boring, and traditionally relegated to very long-term, illiquid funds or direct investments – not the best characteristics for retail investor portfolios. But that has started to change.
Infrastructure investment integration
If you’d like to dig deeper, you can find a whitepaper here from the CAIA Association, but I’ll attempt to do the heavy lifting for you (hint, it’s a giant gray area). First, it questions the foregone conclusion of infrastructure being a distinct asset class, with about half of investors giving its own classification but the other half including it in broader categories like private equity or real assets. In addition, the author, Georg Inderst, cautions against generalizing the characteristics it’s supposed to offer investors – i.e., “long-term, low-risk, inflation-protected and a-cyclical returns” – too much. That’s because a) what qualifies as infrastructure isn’t entirely clear, and b) various infrastructure investments across a broad spectrum of projects and investment structures will behave very differently. It’s similar to the idea that publicly traded stocks, closed-end funds, and private equity can all be “equity,” but they are very different animals.
Certainty principle
What we can say for sure is that society requires good infrastructure to flourish. It’s impossible for that need ever to subside since older infrastructure has to be upgraded/replaced, and future solutions will differ from today’s (e.g., data centers weren’t all the rage 50 years ago). Next time (sorry, but there will be a Part 4), we’ll be able to delve into some (hopefully) exciting examples of infrastructure, ways to invest, and how it may fit into one’s Impa-Structure.
Until next time, this is the end of alt.Blend.
Thanks for reading,
Steve
