Skip to content

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

An investor in a greenfield toll-road project is assessing risks across the infrastructure life cycle. Which statement best describes how the risk profile of greenfield infrastructure differs from that of brownfield (operating) assets?

Greenfield infrastructure bears construction, permitting, cost-overrun and demand ramp-up risk before cash flows start, so it requires higher expected returns. Brownfield assets already operate with a track record and provide steadier, yield-oriented cash flows, so they carry lower risk.

  1. AGreenfield assets carry construction, ramp-up and demand risk and so need higher expected returns, whereas brownfield assets have more stable, yield-oriented cash flowsCorrect
  2. BGreenfield assets have lower risk because revenues are contractually fixed from the first day of construction
  3. CBrownfield assets carry higher risk because they have no operating history
  4. DGreenfield and brownfield assets have identical risk because both are regulated

Explanation

Greenfield projects face construction delay, cost overrun, permitting and volume ramp-up uncertainty before cash flows begin, so investors demand higher returns and returns are growth-oriented. Brownfield assets have operating histories and steadier, yield-oriented cash flows, so the other statements reverse or ignore this.

Did you get it right without looking?

One question tells you little. A timed set on Private Markets Investing shows your real accuracy, how long you take and where you lose marks.

Practise Private Markets InvestingFree diagnostic mock

More Private Markets Investing questions