Measuring Inflation Exposure and Managing Inflation Risk through Infrastructure Investments

Page created by Chester Harrington
 
CONTINUE READING
Measuring Inflation Exposure and Managing Inflation Risk through Infrastructure Investments
ab                                                 Infrastructure and Private Equity
                                                    Asset Management
                                                                                        For Professional / Qualified Institutional
                                                                                        Investors only – August 2012

 Measuring Inflation Exposure
 and Managing Inflation Risk
 through Infrastructure Investments

“Inflation is a periodically recurring evidence of the fact
 that printed money is printed money”
 Helmar Nahr, German economist and mathematician

 Investment Note
 Infrastructure and Private Equity
 Unless otherwise indicated, source is UBS Global Asset Management
Measuring Inflation Exposure and Managing Inflation Risk through Infrastructure Investments
2   Investment Note
Measuring Inflation Exposure and Managing Inflation Risk through Infrastructure Investments
Executive summary
Historically, inflation has been a major concern for long-term investors. The uncertain economic and inflation outlooks we
face at present appear to have heightened investor appetite for investments that provide inflation linked returns. However,
there is considerable debate about the inflation protection attributes of the various asset classes. This investment note
contributes to this debate with a focus on infrastructure.

Infrastructure investments can offer attractive risk adjusted real returns and protection against inflation. Investors need to
be careful though to avoid generalizations for the asset class and to consider the characteristics of each individual asset.
As we show in this paper, assets that appear superficially to have similar inflation sensitivities can deliver very different
exposures to investors.

To support the discussion we introduce our preferred metric, the inflation elasticity of total returns, to measure the inflation
exposure of infrastructure investments. Using UBS International Infrastructure Fund as an example, we demonstrate our
approach to managing inflation risk and providing inflation linked returns to investors. Finally, we argue that for investors
with a long-term investment horizon a global investment strategy can deliver protection against local inflation.

                                                                                                                      Investment Note   3
Measuring Inflation Exposure and Managing Inflation Risk through Infrastructure Investments
4   Investment Note
Measuring Inflation Exposure and Managing Inflation Risk through Infrastructure Investments
Investment and inflation risk
Inflation is a major concern for all long-term investors            Figure 2: CPI inflation in the OECD, US and UK, 1971-2011
and rightly so. Whether a private investor is looking to
                                                                    30%
preserve and grow the purchasing power of her wealth
or an institutional investor with inflation linked liabilities is   25%
looking to match the exposure of its liabilities with its assets,
                                                                    20%
protecting against the effects of inflation is critical
to successful investment outcomes.                                  15%

                                                                    10%
Nevertheless, investors’ focus on inflation often depends
on recent history and their experience. Figure 1 shows              5%
a time series of estimated inflation for the UK over the            0%
past centuries. These data show that when the means of
                                                                    -5%
exchange was based on a commodity with a real cost of                 1971           1981          1991           2001           2011
production and limited supply, most commonly gold or silver,                 United Kingdom       United States   OECD
inflation was effectively a reflection of the changing relative
                                                                    Source: OECD
prices of different goods. Accordingly, inflationary periods
and deflationary periods alternated in line with changes in         While the great moderation might have suppressed investors’
relative supply and demand. Following the introduction of           inflation risk aversion, the recent global economic and
paper money (fiat money) with effectively zero production           financial crises have once again heightened inflation concerns
cost, inflationary and deflationary periods became less             and investors are focusing on inflation risk with renewed
symmetric and more a product of government policy.                  vigor. Significantly, in recent years this concern has been as
Inflation offers governments, thanks to their monopoly over         much about the potential for deflation especially in the short
the supply of currency, an easy and mostly hidden way to            term as about accelerating inflation in the medium term.
tax the economy and to finance government expenditure.
In short, history shows that sustained high rates of inflation      Two polar views are possible. On the one hand, the possibility
are a monetary phenomenon linked to the introduction and            of the world economy going through a period of elevated
government control of fiat money.                                   inflation is higher now than it has been for a long time.
                                                                    With interest rates at historic lows for a prolonged period,
Figure 1: Annual inflation rate in the UK, 1250-2010                with the supply of money and central banks’ balance sheets
                                                                    having expanded dramatically in recent years, and with
 35%
                                                                    higher inflation offering to ease the burden of much needed
 30%
 25%                                                                deleveraging, investors are wary of inflation for good reason.
 20%                                                                On the other hand, economic weakness is still affecting
 15%                                                                most of the developed economies. There are no signs that
 10%                                                                monetary policy is fuelling credit growth or wage inflation
  5%                                                                and a liquidity trap scenario where the increased money
  0%
                                                                    supply is absorbed by asset allocation adjustments remains
 -5%
-10%                                                                a possibility, all of which point towards a low inflation or
-15%                                                                deflationary period. Japan’s experience over the past two
-20%                                                                decades offers parallels and is well within the range of
-25%                                                                possible outcomes.
-30%
   1250       1400        1550       1700        1850        2000
                                                                    Given the history of inflation and current uncertainties
Source: Lawrence H. Officer, Samuel H. Williamson,                  concerning future inflation, it is little wonder that inflation
MeasuringWorth.com
                                                                    risk is a prominent topic for long-term investors.
Figure 2 focuses on more recent inflation history in the
OECD, the US and the UK. The data highlights what has
become known as the “great moderation”, which has seen
declining and then relatively stable low levels of inflation in
the three decades following the high and volatile inflation
of the 1970s and early 1980s. Independent central banks
with credible inflation targets together with improving fiscal
balances contributed to bringing inflation under control.

                                                                                                                         Investment Note   5
Protecting returns against inflation risk

    Most long-term investors are focused on real returns rather                   Table 1: Real return vs inflation, 1900-2011
    than nominal returns. To minimize their exposure to inflation,                  Asset         Coefficient      St Error        t-statistic   No of obs
    the ideal investment would deliver a constant real return
                                                                                    Bills                -0.62         0.01           -70.54         2123
    irrespective of the inflation rate. Looking at historic returns
    of various asset classes going back to 1900 (Table 1), we                       Bonds                -0.74         0.02           -35.23         2123
    can see that the real return of most asset classes drops with                   Equities             -0.52         0.05           -10.60         2123
    increasing inflation. The negative coefficient of the real return               Gold                  0.26         0.05              5.00        2123
    on investments when regressed against the inflation rate                        Real estate          -0.33         0.20             -1.60          280
    measures the average size of this effect.
                                                                                    Housing              -0.20         0.07             -2.99          719

    Table 1 summarizes short term correlation of returns with                     Regressions of annual return versus same-year inflation
    inflation. However, the impact of inflation on returns                        Source: A. Dimson, P Marsh, M. Staunton, J. Wilmot and P. McGinnie,
    depends on the investment horizon and the correlation can                     Credit Suisse Global Investment Returns Yearbook 2012
    differ significantly between the short and long-term. Table
    2 summarizes the key inflation attributes of different asset                  There are instruments, notably inflation indexed bonds,
    classes over different time horizons. It is worthwhile to note                which offer direct inflation hedging. However, such
    that the link between nominal returns and inflation, in terms                 investments are very scarce in comparison with the demand
    of correlation, is generally stronger over the long-term as the               from long-term investors. As a result, the real return that
    effect of short term noise in the data diminishes.                            such instruments currently trade at in many developed

    Table 2: Inflation sensitivity of returns in the short and long-term ( elasticity of nominal returns in brackets)

     Asset                    Short-term (1-3 years)                                           Long-term (5-20 years)
     Cash1                    Real losses as interest rates rise gradually                     Partial inflation hedge after rates catch up with inflation
                              (elasticity of up to 0.2)                                        (elasticity up to 0.8)
     Nominal bonds1           Nominal and real losses as yields rise                           No inflation hedge
                              (negative elasticity of up to 1.5)                               (slightly negative or around zero elasticity)
     Inflation linked bonds   Inflation hedge (elasticity of 1)                                Inflation hedge (elasticity of 1)
     Equities1
                              Nominal and real losses as interest rates rise                   No inflation hedge as growth is affected by inflation
                              (negative elasticity of up to 0.8)                               (slightly negative elasticity)
     Commodities1             Partial inflation hedge as prices respond to inflation shock     No inflation hedge as growth is affected by inflation
                              (elasticity of up to 0.7)                                        (slightly negative elasticity)
     Infrastructure2          Inflation hedge subject to effective indexation                  Inflation hedge subject to effective indexation
                              (elasticity of around 1)                                         (elasticity of around 1)
     Property2                Inflation hedge if rent indexed; otherwise losses as yields      Inflation hedge due to rent indexation or reset
                              rise (negative elasticity)                                       (elasticity around 1 subject to cost structure)

    Source: 1 A.P. Attié and S.L. Roache, Inflation Hedging for Long-Term Investors, IMF Working Paper 09/90; 2 UBS Global Asset Management

6   Investment Note
countries is around zero and in some cases even negative.        Infrastructure assets are commonly viewed as offering inflation
Investors are forced to find alternative investments to manage   hedged returns and we agree that infrastructure investments can
their inflation risk.                                            deliver inflation protection in the long-term. Nonetheless, as we
                                                                 will argue in the remainder of this paper, this only holds under
Commodities have recently been the focus of a great deal         certain conditions and investors need to carefully manage the
of investor attention including as an instrument for inflation   inflation exposure of assets to achieve the desired protection.
hedging. Figure 3 shows commodity prices versus OECD
inflation. As discussed in respect of the long run inflation     Figure 3: Consumer and commodity price inflation, 1981-2012, YoY
data in Figure 1, recent commodity price cycles exhibit
                                                                 200%
much greater symmetry and are characterized by price
spikes and drops much more than recent general inflation.        150%
This emphasizes the importance of individual commodity
supply and demand balances for price movements. Further,         100%
it is interesting to note that the different commodity price      50%
indices (metals, agricultural and crude oil) often diverged
over the past three decades, so that during half of this            0%
period the inflation of one or two of these indices was
                                                                  -50%
above consumer price inflation while the other one or two
were below it.                                                   -100%
                                                                     1981       1986      1991        1996    2001         2006   2011
                                                                        OECD CPI inflation                 Metals Price Index
                                                                        Agricultural Raw Materials Index   Crude Oil Index
                                                                 Source: OECD, IMF

                                                                                                                          Investment Note   7
Measuring the inflation exposure of infrastructure

    Before we turn to the question of managing assets for real           Elasticity and correlation measures
    returns, we need to discuss the question of how to measure           Elasticity measures the extent to which one variable
    the inflation exposure of infrastructure investments.                influences another. Specifically, it provides the ratio of
                                                                         the percentage change in one variable to the percentage
    Attributes focusing on the inflation indexation of revenues          change in another. The basis point elasticity we use for
    through either regulatory formulas or concession contracts           managing inflation risk measures the ratio of the basis
    are often cited as evidence or measures of inflation linked          point (or percentage point) change in nominal returns to
    returns. As discussed later in the paper, such a view is             the basis point (or percentage point) change in inflation.
    too simplistic given the range of other factors influencing          The basis point elasticity is more meaningful and easier to
    inflation exposure. Alternatively, the impact of different           interpret for our purposes than a simple elasticity measure.
    inflation scenarios on current valuation could be used               For example, if inflation of 3 per cent results in nominal
    to measure this exposure, and this might be appropriate              returns of 10 per cent while inflation of 2 per cent would
    for investments with a short holding period. Being long-             correspond to a nominal return of 8 per cent, the basis
    term investors and recognizing the illiquid nature of the            point elasticity is 2 (200 basis divided by 100 basis point)
    infrastructure asset class, our preferred measure is a return        while a simple elasticity measure would be a less intuitive
    sensitivity to changes in inflation. Specifically we use the basis   0.5 (25 per cent increase in return divided by 50 per cent
    point elasticity of returns to inflation, which is calculated as     increase in inflation).
    the basis point change in nominal returns divided by the basis
    point change in the inflation rate.                                  Correlation, on the other hand, measures the consistency
                                                                         but not the extent of the relationship between two
    While it is a very useful tool, our measure and methodology          variables. An 80 per cent correlation between long-term
    has certain limitations that should be kept in mind. It assumes      inflation and nominal returns would indicate that inflation
    parallel shifts in inflation rates and at the portfolio level it     explains a lot of the variation, i.e. the inflation is a major
    assumes similar shifts across all countries represented in the       driver of returns, but would not answer the question
    portfolio. Further, it reflects the sensitivity to inflation at a    whether a one percentage point higher inflation is likely to
    specific point in time while the exposure might change over          lead to a 2 percentage point increase in nominal returns,
    time and needs to be managed on a continuous basis. Also,            or to half a percentage point increase.
    it measures elasticity to changes in one price index, most
    commonly the consumer price index, while certain return              Hence, elasticity measures are commonly used for risk
    drivers could be more closely linked to different price indices,     management purposes. The Greeks (for example delta,
    for example the construction price index, resulting in some          vega, theta) used in option theory and derivates based risk
    basis risk.                                                          management are all elasticity measures.

8   Investment Note
Drivers of inflation sensitivity of infrastructure assets

The exposure of an infrastructure investment’s performance              have different cost and financing structures. For reasons
to inflation is influenced by a range of factors. The revenue           of simplicity we combine operating costs and capital
regime attracts most of the attention and full or partial               expenditure under total expenditure (“totex”) and use an
indexation of revenues to inflation is quite common under               operating margin that reflects both these costs.
both price and return regulation. However, the inflation
sensitivity of operating costs, capital expenditure as well as          As can be seen from Table 3, asset A offers an equity return
the capital structure of the asset, among many other things,            with a basis point elasticity of around 1.75 to inflation, while
have a huge influence on the sensitivity of equity returns. The         asset B’s return elasticity is only 0.5. Notwithstanding the
illustrative, and admittedly not exact, calculations presented          same revenue indexation, the fact that the majority of asset
in Table 3 provide an idea of the importance of these drivers.          A’s costs are mostly fixed, while asset B’s costs are mostly
                                                                        linked to inflation results in a very different inflation exposure
For our illustration we use the example of assets A and B               and protection for the equity investor.
that have the same, partially indexed revenue regime but

Table 3
    Asset A                           Indexation                         Asset B                           Indexation
    Revenues                          80% indexed                        Revenues                          80% indexed
    Totex                             50% indexed                        Totex                             100% indexed
    Operating margin of 80%                                              Operating margin of 80%
    Unlevered returns                 Approx 87.5% indexed1              Unlevered returns                 Approx 75% indexed1
    Fixed rate debt                   0%                                 Indexed debt                      100%
    Debt service of 50 % as a portion of unlevered cash flows            Debt service of 50 % as a portion of unlevered cash flows
    Levered returns                   Approx 175% indexed2               Levered returns                   Approx 50% indexed2

1
  Calculated as (Revenue indexation - (1 - Operating) x Totex indexation)/Operating margin. (80%-0.2*50%)/80% for A and (80%-
0.2*100%)/80% for B.
2
  Calculated as (Unlevered return - Debt service ratio x Debt indexation) / (1 - Debt service ratio). (87.5%-50%*0%)/(1-50%) for A and
(75%-50%*100%)/(1-50%) for B.
Note that the above calculation is only an approximation based on simplified assumptions and ignoring non linear nature of growth rates
such as inflation or nominal return.

                                                                                                                             Investment Note   9
Application of the elasticity measure to UBS IIF’s portfolio

     While a rough calculation is useful to demonstrate the              in the long-term. The effect of other factors on returns
     contribution of different value drivers to inflation exposure,      can easily dominate the influence of inflation in the short
     it is both inaccurate and an oversimplification. Using a            term, but the longer an investor’s time horizon, the more
     detailed financial model to estimate the impact of different        important the effect of inflation risk is.
     inflation scenarios provides a more complete and accurate
     picture and is more appropriate for the purposes of risk            Finally, investors seeking protection against a local inflation
     management.                                                         rate but investing globally or in international funds need to
                                                                         consider the appropriateness of investments with returns
     As part of our ongoing portfolio and asset management               linked to inflation in other countries. Our view is that the
     process, we track the inflation exposure of the investments         suitability of a global strategy under such circumstances
     of UBS International Infrastructure Fund. As of the last            again depends on one’s investment horizon. As it has been
     valuation date, September 2011, the basis point inflation           confirmed by various studies1, the purchasing power parity
     elasticity of the fund’s portfolio was approximately 1.2            theory of exchange rates holds over the long term meaning
     meaning that a one percentage point increase in future              that most of the variation in exchange rates over the
     inflation rates would increase long-term nominal returns by         long-term is explained by differences in the corresponding
     around 1.2 percentage points. This elasticity is estimated          inflation rates. The implication is that the combination of
     assuming a sustained shift in inflation relative to the             inflation linked assets in other currencies and no currency
     underlying business plan across the holding period for the          hedging provides fairly good protection against local
     investment and shows that the fund is expected to provide           inflation over the long-term. For example, a higher foreign
     inflation protection in line with its mandate.                      inflation rate would lead to a higher nominal return in
                                                                         the foreign currency than would be the case with a local
     It should be emphasized that the above measure and                  investment, but this would be offset by a weakening foreign
     application to inflation risk management is useful primarily        currency over the long-term.

     1
      For example The Purchasing Power Parity Debate by Alan M. Taylor
     and Mark P. Taylor, Journal of Economic Perspectives—Volume 18,
     Number 4—Fall 2004—Pages 135–158

10   Investment Note
Conclusion

Having examined the inflation attributes of the
infrastructure asset class, we conclude that infrastructure
investments can offer inflation linked returns and can be
a valuable tool for the inflation risk management of a
portfolio. However, this conclusion only holds under certain
conditions and requires careful management both at the
asset and portfolio level. Focusing on the inflation link of
revenues is not sufficient and can mask important aspects
relevant for managing inflation risk. A strategy targeting
inflation protection requires a comprehensive view of the
inflation attributes of all return drivers, including operating
costs, capital expenditure and the capital structure. Further,
pursuing inflation protection is more relevant and realistic
over the long-term, as other factors tend to dominate the
effect of inflation on returns in the short term. The long-
term nature of infrastructure lends itself to long-term
investment and accordingly to inflation risk management.

Contacts
Kate Martin
Investor Relations Executive
New York
Tel. +1-212-821 65 57
Mobile +1-347-439 83 36
kate.martin@ubs.com

Arpad Cseh
Investment Executive
London
Tel. +44-207-901 59 94
Mobile +44-776-831 62 64
arpad.cseh@ubs.com

                                                                  Investment Note   11
This document is intended for limited distribution       the underlying assets are very illiquid. In certain      to the public in the PRC or used in connection
to professional/institutional clients and associates     circumstances, repatriations might be delayed if         with any offer for the subscription or sale of the
of UBS Global Asset Management. Using, copying,          an investment is not readily saleable and there          Securities in the PRC. The Securities may only
reproducing, redistributing or republishing any          is insufficient cash within the portfolio. Source        be offered or sold to the PRC investors that are
part of this publication without the written             for all data and charts (if not indicated otherwise):    authorized to engage in the purchase of Securities
permission of UBS Global Asset Management                UBS Global Asset Management or one of the Fund’s         of the type being offered or sold. PRC investors are
is prohibited. Any statements made regarding             portfolio companies.                                     responsible for obtaining all relevant government
investment performance objectives, risk and/or                                                                    regulatory approvals/ licences, verification and/or
return targets shall not constitute a representation     Additional disclosures                                   registrations themselves, including, but not limited
or warranty that such objectives or expectations         Australian investors                                     to, any which may be required from the CSRC, the
will be achieved. The information and opinions           UBS Global Asset Management (Australia) Ltd              State Administration of Foreign Exchange and/
contained in this document have been compiled or         (ABN 31 003 146 290, AFS Licence No 222605)              or the China Banking Regulatory Commission,
arrived at based upon information obtained from                                                                   and complying with all relevant PRC regulations,
sources believed to be reliable and in good faith        Canadian Investors                                       including, but not limited to, all relevant foreign
but no responsibility is accepted for any errors or      UBS Global Asset Management (Canada) Inc.                exchange regulations and/or foreign investment
omissions. All such information and opinions are         is a subsidiary of UBS AG. UBS Global Asset              regulations.
subject to change without notice. A number of the        Management (Canada) Inc. is registered as portfolio
comments in this document are based on current           manager and exempt market dealer (in all provinces       Singapore investors
expectations and are considered “forward looking         and territories of Canada), commodity trading            This document is solely for information and
statements.” Actual future results, however,             manager and investment fund manager (Ontario),           discussion purposes only and only intended for
may prove to be different from expectations.             and advisor - Commodity Futures (Manitoba) and           institutional investors as defined in section 4A
The opinions expressed are a reflection of UBS           derivatives portfolio manager (Quebec) pursuant to       of the Securities and Futures Act (Cap. 289) of
Global Asset Management’s best judgment at the           Canadian securities law. Investment opportunities        Singapore. This document is not intended as an
time this report is compiled, and any obligation         presented in this document may not be available to       offer, or a solicitation of an offer, to buy or sell
to update or alter forward looking statement             all Canadian investors. The use of forward looking       any investments or other specific product, and has
as a result of new information, future events,           information or any disclaimers surrounding forward       not been recognised by the Monetary Authority
or otherwise is disclaimed. Investors should be          looking information in this document was not             of Singapore under the Securities and Futures Act
aware that past performance of investment is             made in accordance with any applicable Canadian          (Cap. 289) for sale in Singapore.
not necessarily a guide to future performance.           legislation relating to such information.
Potential for profit is accompanied by possibility                                                                Saudi Arabia investors
of loss. It should not be assumed that any of the        CEMEA investors                                          This publication has been approved by UBS Saudi
securities transactions or holdings referred to          This document has been issued by UBS Global              Arabia (a subsidiary of UBS AG), a foreign closed
herein were or will prove to be profitable, or that      Asset Management (UK) Ltd., a company                    joint stock company incorporated in the Kingdom
the investment recommendations or decisions we           registered under the Laws of the United Kingdom.         of Saudi Arabia under commercial register number
make in the future will be profitable or will equal                                                               1010257812 having its registered office at Tatweer
the investment performance of the securities             Dubai investors                                          Towers, P.O. Box 75724, Riyadh 11588, Kingdom
referred to in this document. This document              UBS AG Dubai Branch is regulated by the DFSA.            of Saudi Arabia. UBS Saudi Arabia is authorized
is a marketing communication. Any market or              This material is for professional clients only.          and regulated by the Capital Market Authority to
investment views expressed are not intended                                                                       conduct securities business under license number
to be investment research. This document is              Hong Kong investors                                      08113-37.
for distribution only under such circumstances           The sole purpose of this document is purely for
as may be permitted by applicable law. It was            information and discussion purpose to Professional       UK investors
written without reference to any specific or future      Investors only (as defined in the Hong Kong              Not to be distributed to or relied upon by Retail
investment objective, financial or tax situation or      Securities and Futures Ordinance). Please note           Clients under any circumstances. This document
requirement on the part of a particular individual       that the product(s) mentioned in this document is/       is intended to give an overview of Infrastructure
or group. This information is not intended to            are currently not authorized by the Securities and       investment. The document has not been prepared
provide, and should not be relied upon for,              Futures Commission in Hong Kong ( the “SFC”)             in line with the FSA requirements designed to
accounting, legal or tax advice, or investment           and not available for retail distribution in Hong        promote the independence of investment research
recommendations. You should consult your tax,            Kong. This document is not meant for public              and is not subject to any prohibition on dealing
legal, accounting or other specialist advisors as        distribution and the contents therein have not           ahead of the dissemination of investment research.
to the legal and tax implications of investing; for      been reviewed by the SFC.                                UBS Global Asset Management (UK) Ltd is a
example, you should consult your tax advisor in                                                                   subsidiary of UBS AG. Registered in England and
order to fully understand the federal, state, local      Korean Investors                                         authorised and regulated by the Financial Services
and foreign income tax consequences of a foreign         This document is not and under no circumstances          Authority: UBS Global Asset Management (UK)
investment. UBS Global Asset Management, its             is, to be construed as a public offering of securities   Ltd, UBS Global Asset Management Funds Ltd, UBS
related companies, or its clients, may from time         in Korea. UBS Global Asset Management is not             Global Asset Management Life Ltd. Telephone calls
to time, have long or short positions in, buy or         making any representation with respect to the            may be recorded.
sell securities or related securities referred to in     eligibility of any recipients of this document
this material. This document does not constitute         to invest in the Fund. The Fund has not been             US Investors
an offer to sell or a solicitation to offer to buy any   registered with the Financial Services Commission        Services to U.S. persons are provided by UBS
securities and nothing in this shall limit or restrict   of Korea (the “FSC”) under the Financial                 Global Asset Management (Americas) Inc.
the particular terms of any specific offering. The       Investment Services and Capital Market Act (the          (“Americas”), a member of the UBS Global Asset
investment strategies mentioned in this document         “FSCMA”) for a public offering. The Fund may             Management business division and a subsidiary of
may or may not be in existence yet. Accordingly          only be sold in Korea through a local financial          UBS AG. Americas is registered as an investment
the terms outlined in this document may vary             investment company registered with the FSC               adviser with the US Securities and Exchange
when the investment strategies have been                 on a private placement basis to certain qualified        Commission (“SEC”) under the Investment Advisers
finalized. Offers will be made only to qualified         professional investors as defined in the FSCMA.          Act of 1940. From time to time, Americas’ non-
investors by means of a prospectus or confidential                                                                US affiliates in the Asset Management Division
private placement memorandum providing                   People’s Republic of China Investors                     who are not registered with the SEC (“Participating
information as to the specifics of the offering.         The securities may not be offered or sold directly       Affiliates”) provide investment advisory services
The prospectus or confidential private placement         or indirectly in the People’s Republic of China (the     to Americas’ U.S. clients. Americas has adopted
memorandum should be examined fully before               “PRC”). Neither this document or information             procedures to ensure that its Participating Affiliates
investing in the offering. No offer of any interest      contained or incorporated by reference herein            are in compliance with SEC registration rules.
in any product will be made in any jurisdiction          relating to the securities, which have not been          All investment opportunities presented in this
in which the offer, solicitation or sale is not          and will not be submitted to or approved/                document may not be available to US investors.
permitted, or to any person to whom it is unlawful       verified by or registered with the China Securities
to make such offer, solicitation or sale. With           Regulatory Commission (“CSRC”) or other relevant         © UBS 2012. The key symbol and UBS are among
investment in infrastructure (via direct investment,     governmental authorities in the PRC pursuant to          the registered and unregistered trademarks of UBS.
closed-end funds and or open ended funds),               relevant laws and regulations, may be supplied           All rights reserved.

www.ubs.com

                                                                                                                                                                22302
You can also read