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FRM Part II · FRM Exam Part II · Private Markets Investing

A manager compares brownfield and greenfield infrastructure investments for a long-horizon investor seeking stable, inflation-linked cash flows. Which statement is most accurate?

Brownfield infrastructure is already built and operating, so its cash flows are more predictable and lower risk. Greenfield projects face construction, permitting, and demand ramp-up risks, which is why investors usually require higher expected returns for them.

  1. AGreenfield assets have operating cash flow history and lower risk than brownfield
  2. BBrownfield assets are already operating, with more predictable cash flows, while greenfield carries construction and demand riskCorrect
  3. CBoth carry identical risk because infrastructure revenues are always contracted
  4. DGreenfield assets offer lower expected returns because construction risk is fully insured

Explanation

Brownfield assets are existing and operating, so cash flows are more predictable and valuations rely on history. Greenfield projects involve construction, permitting, and ramp-up/demand risk, and typically need higher expected returns to compensate.

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