The Opportunity

in Infrastructure Debt
PUBLIC SECURITIES GROUP
We see a compelling opportunity in the debt of infrastructure Infrastructure Assets Are Essential Throughout Cycles
companies that form the backbone of the global economy. Illustrative Example: Utilities & Renewables

Infrastructure debt is a growing asset class powered by tailwinds to 1973 Late 1970s Early 1990s Late 2000s 2020
infrastructure growth—what we call the “Three Ds”—the megatrends of Brookfield Essential Essential Essential Essential
decarbonization, digitalization and deglobalization. Through 2040, public and first invests in during during during during
private entities are expected to spend nearly $80 trillion to modernize utilities renewable power recession rising rates recession pandemic
as well as build, expand and improve essential energy, data and transportation
infrastructure. At the same time, the unique characteristics of infrastructure
enable infrastructure debt to offer several potential investment benefits
to portfolios.

The Unique Characteristics of Infrastructure

Infrastructure assets form the backbone of the modern economy. They include
the networks and systems that provide essential services and facilitate economic
activity, and they tend to involve the movement or storage of goods, water,
energy, people or data. Examples of these assets include toll roads, bridges,
airports, power lines, solar and wind farms, fiber networks, communication
towers, data centers and much more.

Across the heterogeneous infrastructure universe, assets have varying levels

of sensitivity to risk and return drivers, depending on the subsector. Yet while
infrastructure assets are diverse, they are bound together by several hallmark
unique characteristics.
Early 1970s Early 1980s Early-Mid 2010s Today
They are essential. Infrastructure assets generally serve as the backbone for Essential Essential 2000s Essential A key part
basic, irreplaceable public services that support economic and social activity. during high during during of our universe
Essential during
As a result, these infrastructure assets benefit from relatively inelastic demand
inflation recession low growth
recession and
throughout cycles. into rate hikes

As of November 30, 2024. For illustrative purposes only. Historical examples refer to Brookfield Asset Management Inc. and its affiliates. The mention of any specific security is not intended
as investment advice and it is not a recommendation, offer or solicitation for any person to buy, sell or hold any particular and it is not an indication of trading intent or current holdings
or future holdings of Brookfield or the prediction of investment performance. The reader should not assume that an investment in the securities identified was or will be profitable.
Views, opinions, forecasts or other information expressed herein are current as of the dates mentioned and are subject to change at any time without notice.

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They have high barriers to entry. Due to high capital costs, The Growing Infrastructure Debt Universe
economies of scale, geographic location advantages and
contractual and/or regulatory frameworks, infrastructure Billion $

assets typically have high barriers to entry and often face

● Asia Pacific ● Europe ● Latin America ● MENA ● North America
little or no competition.

They generate stable and predictable long-term cash

flows. The regulatory framework or concessions under $1,180 $1,150
which infrastructure services are provided tend to last
$904
for more than 30 years, with pricing provisions aimed $786
$757
at generating a predictable return over time. $683
$537 $537
Owners of infrastructure assets typically have high up-front $502
$371 $393
investment costs and navigate a complex regulatory $342 $311
$294
environment to develop, maintain and upgrade their assets
over time. Their needs as borrowers vary, ranging from
financing of capital expenditures and acquisition finance 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
to refinancings and recapitalizations. Infrastructure lending
Source: IJ Global Data Transactions; accessed June 2023.
across the board has increased steadily and significantly
over the past decade-plus thanks to the strong long-term
fundamental drivers powering investment in the asset class.
The investment universe of this debt spans from investment Infrastructure subsectors share attractive common elements but have diverse fundamental drivers of risk and return.
grade to high yield, hybrids and term loans, with each
COMMON ELEMENTS SUBSECTORS* VARYING LEVELS OF SENSITIVITY
offering potential portfolio benefits.

Data Infrastructure – Cable • Growth

7%
• Risk Sentiment
Midstream
Essential, Long-Lived and • Demographics
13%
Appreciating Assets ~$3.0T • Currency
High Barriers to Entry Investment Utilities & Renewables
Grade • Interest Rates
Stable and Predictable Cash Flows 40%
~$1.0T • Technology
High Income Potential
Transportation & Services High Yield • Regulation and Policy
Inflation Protection 17% and Loans
• Consumption
• Oil
Data Infrastructure – Telecom • Commodities
23%

As of December 31, 2023. Source: Brookfield PSG, Bloomberg. See disclosures for additional information.

THE OPPORTUNITY IN INFRASTRUCTURE DEBT * Represents the Infrastructure Sectors, as defined by Brookfield, of the ICE BofA Global Corporate Index, ICE BofA Global High Yield Index, and Bloomberg’s universe of loans.

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The Portfolio Benefits Infrastructure Ratings Have Been Less Volatile Historically
One-Year Rating Volatility

of Infrastructure Debt ● Total Infrastructure Securities ● Nonfinancial Corporate Issuers

U.S. merchant power Infrastructure largely Infrastructure

price volatility unaffected by the global largely unaffected by
The common characteristics of infrastructure—particularly financial crisis COVID-19 disruption

the providing of essential services in markets with high barriers 0.8

to entry and consistent cash flows—are behind the potential

0.7
portfolio benefits that infrastructure debt can offer.
0.6

NOTCHES PER CREDIT

Lower ratings volatility 0.5
We have found that infrastructure issuers have generally been
higher-quality businesses compared with non-real asset companies, 0.4
which may face more intense competition because of fewer barriers
to entry. As a result, infrastructure ratings have historically been more 0.3

stable than nonfinancial corporate issuers (NFC) ratings. On average,

ratings for total infrastructure securities have been 61% less volatile 0.2

than NFC ratings.

0.1

0.0
1983 1986 1989 1992 1995 1998 2002 2005 2008 2011 2014 2017 2021

COHORT DATE

Source: Moody’s "Infrastructure Default and Recovery Rates, 1983-2022."

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Lower default rates and higher recovery rates Infrastructure Debt Has Relatively Low Default Rates and Higher Recovery Rates
Infrastructure debt across the ratings spectrum has historically exhibited lower
● Year 1 ● Year 3 ● Year 5 ● Year 10
incidence of default and higher recovery rates than the debt of non-real asset
companies. The cumulative five-year default rate for nonfinancial corporates
OVERALL CUMULATIVE DEFAULT RATES OVERALL CUMULATIVE RECOVERY RATES
has been 9.6%, while infrastructure corporate and project finance has been
2.4%. In aggregate, infrastructure debts have historically been less likely 14.3%
to incur credit losses than NFCs, especially over longer horizons. On average,
a total infrastructure debt security suffered credit losses amounting to 0.3% 99.8%

of its face value over five years and 0.5% of its face value over 10 years, Corporate
99.4%
Infrastructure
compared with 6.0% and 8.9%, respectively, for a typical NFC.
and Project
Finance 99.1%
We attribute the lower default rates to the attractive fundamental characteristics 9.6%
of the underlying assets that infrastructure companies own and operate. 98.6%
Meanwhile, when these companies do default, we attribute investors being
able to recoup more of their investment to the high-quality assets that back
6.4%
infrastructure companies. This stronger underlying collateral generates cash
flows that creditors typically have a priority claim on. 98.7%

3.9% Nonfinancial 96.1%

Corporates
2.4% 94.1%
2.2%
1.6%
91.3%
0.5%

Corporate Infrastructure Nonfinancial

and Project Finance Corporates

Source: Moody’s "Infrastructure Default and Recovery Rates, 1983-2022."

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Low cyclicality Infrastructure Debt Has Offered Defensiveness in Periods of Distress
Given infrastructure debt’s higher quality and lower default rates, Average Annual Default Rates During Periods of Economic Stress
we find that it has offered defensiveness in periods of distress.
Utilities especially tend to be more defensive and have historically ● Infrastructure ● Non-Real Asset
outperformed in economic downturns. 6% 5.6%
5% 4.6%
4.1%
●4%
Infrastructure ● Non-Real 3.8%
Asset
3%
6% 2.8%
5.6% 2.2%
2%
5% 1.8%
4.6%
1% 4.1%
4% 0.6% 3.8%
0%
3% 2.8%
1989-1992 2000-2002 2008-2009 2.2%2020
2% 1.8%

As 1% 0.6%
of December 31, 2023. Source: Moody’s and Brookfield PSG research. The time frames represent recent periods of default rates 200 basis points (bps) or higher than the historical average.
The long-term annual average back to 1920 is 2.8%. Brookfield classifies the following sectors as infrastructure: cable & satellites; telecommunications; transportation and utilities.
0%
● Infrastructure ● Non-Real Asset
1989-1992 ● Grey shading represents recessionary
2000-2002 period* 2008-2009 2020

9%
Average Annual Default Rates (1980-2023)

●6%
Infrastructure ● Non-Real Asset ● Grey shading represents recessionary period*

9%
3%

6%
0%
1980 1986 1992 1998 2004 2010 2016 2023
3%

0%
1980 1986 1992 1998 2004 2010 2016 2023

As of December 31, 2023. Source: Moody’s and Brookfield PSG research. The time frames represent recent periods of default rates 200 basis points (bps) or higher than the historical average.
The long-term annual average back to 1920 is 2.8%. Brookfield classifies the following sectors as infrastructure: cable & satellites; telecommunications; transportation and utilities.

* National Bureau of Economic Research (NBER) based Recession Indicator for the United States from the Peak through the Trough. Full calendar year shaded if at least one month in that calendar
year was considered a recessionary period.

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Attractive risk-adjusted returns Infrastructure Has Historically Outperformed Broad Sectors
Infrastructure debt can potentially provide attractive risk-adjusted Annualized Excess Returns vs. Government Bonds (December 31, 2002-September 30, 2024)
returns. Indeed, we find infrastructure debt has historically
outperformed similarly rated broader corporates, while providing ● Infrastructure ● Broad

exposure to investments that are deemed to be essential in nature.

6%
We attribute this outperformance to infrastructure assets’ higher
quality and defensive nature in down markets. 4.97% 5%
4.44%
4%

3%

2%
1.49% 1.67%
1.19% 1.28%
1%

0%
SHORT DURATION INVESTMENT GRADE HIGH YIELD

Standard Deviation 2.89% 2.99% 5.60% 5.11% 9.02% 9.66%

Sharpe Ratio 0.52 0.40 0.30 0.25 0.55 0.46

For the period December 31, 2002 through September 30, 2024. Source: Brookfield PSG, Bloomberg. Period reflects longest available dataset for the majority of the indexes in scope. Standard
Deviation represents the annualized standard deviation of the monthly excess returns. Sharpe Ratio shown with this standard deviation as the denominator. Infrastructure refers to the infrastructure
sectors, as defined by Brookfield, of each respective index presented. Short Duration refers to the ICE BofA 1-5 Year U.S. Corporate Index (CVA0); Investment Grade refers to the ICE BofA U.S.
Corporate Index; Hybrids/Preferreds not shown due to the ICE Variable Rate Preferred & Hybrid Securities Index inception date subsequent to start date; High Yield refers to the ICE BofA U.S.
High Yield Index. See disclosures for index definitions. It is not possible to invest directly in an index. Index performance is shown for illustrative purposes only and does not predict
or depict the performance of any investment. Past performance is not indicative of future results.

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Attractive spreads Infrastructure Offers a Potential Spread Advantage Over Broad Sectors
We find that infrastructure debt currently offers a premium over similarly rated Option-Adjusted Spread (bps)
broader corporates, while providing exposure to investments that are deemed
to be essential in nature. ● Infrastructure ● Broad

400 375
Within high yield, this has been driven by dislocation within the data
350
infrastructure subsector, particularly among legacy telecommunications 303
300
issuers. Telecommunications is historically a high-capital-expenditure sector,
250
and it is going through structural changes due to competitive repositioning 200
200
of legacy businesses amid technological disruption, including significant Infrastructure
●150 ● Broad 160

build-out of fiber networks to replace copper networks. 102 92

100
400 375 68 69
50
350
While we expect some telecommunications defaults among several large 303
0
300
high-profile issuers, we believe there is attractive relative value to be found High Yield Hybrids/Preferreds Investment Grade Short Duration
250
among certain high-yield issues backed by high-quality infrastructure assets. 200
200
Certain owners of high-quality fiber networks are likely to be key beneficiaries As of September 30, 2024. Source: Brookfield PSG, Bloomberg. Infrastructure refers 160
to the infrastructure sectors, as defined by Brookfield, of each respective index presented. Short Duration refers
to150
the ICE BofA 1-5 Year U.S. Corporate Index; Investment Grade refers to the ICE BofA U.S. Corporate Index; Hybrids/Preferreds refers to the ICE Variable Rate Preferred & Hybrid Securities Index;
of AI-related demand for low-latency bandwidth. Indeed, there have been several 102
100Yield refers to the ICE BofA U.S. High Yield Index. See disclosures for index definitions. It is not possible to invest directly in92
High an index. Index performance is shown for illustrative purposes
only and does not predict or depict the performance of any investment. Past performance is not indicative of future results. 68 69
recent announcements of large deals with hyperscalers for dedicated capacity 50
on these networks. 0
Infrastructure Hybrid/Preferred Characteristics: 8%
High Yield Hybrids/Preferreds Investment Grade Short Duration 7.00%
• Predominantly investment-grade issuer credit ratings 6.28% 6.50%
We also currently see infrastructure hybrids and preferreds offering a spread
advantage. We believe this is a potential mispricing of many investment- Infrastructure Hybrids
• Concentrated in our sectors of expertise: Offer
high-qualitya Potential
6% Yield and Spread Advantage
4.99%
5.84%
with Less Credit Risk
utilities and midstream
grade-quality issuers, driven by the relative complexity of these securities.
Yield to Worst
• Lightly covered market with potential inefficiencies 4%
The result is attractive yields with less credit risk than in broad sectors.
• Opportunity to take instrument risk while minimizing
credit riskHybrid/Preferred Characteristics:
Infrastructure 2%
8%
7.00%
• Predominantly investment-grade issuer credit ratings 6.28% 6.50%
0%
6% 5.84%
• Concentrated in our sectors of expertise: high-quality
utilities and midstream 4.99%
BBB Corporates BBB Infrastructure BB Corporates BB Infrastructure B Corporates
Hybrids Hybrids
• Lightly covered market with potential inefficiencies 4%
• Opportunity to take instrument risk while minimizing
credit risk 2%

0%
BBB Corporates BBB Infrastructure BB Corporates BB Infrastructure B Corporates
Hybrids Hybrids

As of September 30, 2024. Source: Brookfield PSG, Bloomberg. BBB Corporates refers to the ICE BofA BBB U.S. Corporate Index. BBB Infrastructure Hybrids refers to the BBB-rated securities
in infrastructure sectors, as defined by Brookfield, of the ICE Variable Rate Preferred & Hybrid Securities Index. BB Infrastructure Hybrids refers to the BB-rated securities in infrastructure sectors,
as defined by Brookfield, of the ICE Variable Rate Preferred & Hybrid Securities Index. BB Corporates refers to the ICE BofA BB U.S. High Yield Index. B Corporates refers to the ICE BofA B U.S. High
Yield Index. See disclosures for index definitions. It is not possible to invest directly in an index. Index performance is shown for illustrative purposes only and does not predict or depict
THE OPPORTUNITY IN INFRASTRUCTURE DEBT the performance of any investment. Past performance is not indicative of future results.
PUBLIC SECURITIES GROUP

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 The Brookfield Advantage Case Studies:
Capturing the Portfolio Benefits of Infrastructure Debt
To access the opportunity in infrastructure debt, we believe it is key to work with a manager
with infrastructure expertise rooted in superior fundamental and credit analysis. We believe Liquid Complement to a Private Infrastructure Portfolio
a deep understanding of the assets backing debt can lead to capital preservation and better Investment Need
investment outcomes. Client with a large private infrastructure portfolio aiming to maintain liquidity for inflows and outflows
and maintain exposure to infrastructure.
At Brookfield PSG, we have extensive experience investing in infrastructure across the capital
structure—from listed equities to hybrids to term loans and corporate bonds—as well as Infrastructure Debt Portfolio
across multiple market cycles. We believe this gives us an advantage in uncovering potential A diversified, liquid portfolio of high-yield infrastructure debt that provides liquidity as well as the
opportunities to gain exposure to the attractive characteristics of infrastructure assets. potential for income and diversification.

As we seek to capture such opportunities, we aim to add value to real asset debt portfolios
through our security selection, sector allocations and credit allocations, while prioritizing Portfolio Optimization
capital preservation and income capture. We employ rigorous analysis to determine our
Investment Need
exposures, building our portfolios in all environments based on investment conviction,
Large insurance client aiming to increase portfolio yield relative to existing bond assets and offer
relative attractiveness of individual issues and the investment goals of our clients.
attractive risk profile.

Infrastructure Debt Portfolio

A diversified portfolio of high-quality infrastructure debt designed to be a yield-enhancing allocation
BROOKFIELD CAN INVEST ACROSS THE CAPITAL STRUCTURE
that can help optimize the overall portfolio, while providing the attractive potential risk characteristics
infrastructure investment grade may offer.

Hybrids/ Corporate Term

Equities
Preferreds Bonds Loans Enhanced Returns
Investment Need
Multi-asset allocation with desire to enhance risk return profile and capture dislocations.

Infrastructure Debt Portfolio

A portfolio of infrastructure hybrids designed to provide diversification and attractive potential
risk-adjusted returns as well as serve as an additional way to achieve asset allocation alpha.

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Disclosure Information

All investing involves risk. The value of an investment will fluctuate over expressed herein are subject to change at any time. Brookfield disclaims Many such factors will be important in determining our actual future The ICE BofA BB U.S. High Yield Index is a subset of the ICE BofA U.S.
time, and an investor may gain or lose money, or the entire investment. any responsibility to update such views and/or information. This results or outcomes. Consequently, no forward-looking statement can High Yield Index including all securities rated BB1 through BB3, inclusive.
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Securities Group of Brookfield Asset Management Inc., providing global Section 21E of the Securities Exchange Act of 1934, as amended, and Index Definitions
listed real assets strategies including real estate equities, infrastructure Canadian securities laws. Forward-looking statements include all The Sharpe Ratio is a measure of risk adjusted return comparing an
equities, multi-strategy real asset solutions and real asset debt. PSG statements, other than statements of historical fact, that address future The ICE BofA 1-5 Year U.S. Corporate Index tracks the performance
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manages separate accounts, registered funds and opportunistic strategies activities, events or developments, including, without limitation, business of U.S. dollar-denominated investment-grade corporate debt publicly
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an indirect, wholly owned subsidiary of Brookfield Asset Management Inc., U.S. Corporate Index including all securities rated BBB1 through
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