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    Equity betas for listed infrastructure funds
    The share prices of listed infrastructure funds demonstrate very low volatility vs the equity market as a whole

    Winter 2015 / 2016

         December 2015

    Equity betas of listed infrastructure funds are very low which reflect the stable cash flows and low asset betas of the underlying projects. Ninety-eight percent of the volatility is from unsystematic risk due to the sector's low correlation to the business cycle. Portfolio risk from infrastructure debt can be diversified away more easily than portfolio risk from leveraged loans, where there is higher systematic risk.

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    Evaluating Local Authority credit in a new era of budgetary constraints
    Sequoia's proprietary UK Local Authority credit factor model

    Spring 2015

         March 2015

    UK local authorities have historically enjoyed a strong credit profile. The few that are rated are mostly in the AA category and none have ever defaulted. However, the framework for local authorities is changing, with discussion of devolving further powers to them, and their budgets are under continuing pressure. We have built a proprietary credit factor model to assess local authority credit strength. This assists us when selecting assets dependant on unitary availability payments from local authority governments.

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    European deflation or low inflation?
    Inflation has surprised to the downside in 2014, with Euro area HICP currently running at 0.60%. While many forecasters did not expect such a surprise, we do not expect meaningful deflation

    Winter 2014 / 2015

         December 2014

    Brief periods of deflation are a normal part of a business cycle and usually turn out to be just short periods of falling prices. Longer, drawn out periods of deflation are extremely rare. With the exception of Japan, all instances of past deflation were in countries with fixed exchange rate regimes.

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    The times they are a-changin
    Infrastructure debt is moving from a lending asset class to an investment asset class

    Autumn 2014

         September 2014

    As infrastructure debt moves gradually from being substantially a banking monopoly to an established institutional asset class, many people have given consideration to the likely consequences for lending structures and terms, for example, fixed rate, bond versus loan format, fully drawn day one, higher credit quality and less prepayment flexibility.

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    Sequoia's key takeaways on Moody's project finance study update
    Moody's confirms infrastructure debt's continued low defaults, high recoveries and very low loss rates

    Summer 2014

         August 2014

    In March 2014, Moody’s published an update to its study of project finance and infrastructure loan performance. The study now covers a 30-year period and an estimated 54.2% of the asset class globally. It is one of the best sources of performance data for the asset class. The findings confirm broad infrastructure’s continued low default rate of 49 bps per annum (pa), high recoveries at 84.3% and very low loss rates of 7.7 bps pa.  

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Sequoia Investment Management Company specializes in infrastructure debt and structured finance asset management

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