Global Listed Infrastructure: In a Class of Its Own Edward P. - PowerPoint PPT Presentation

Global Listed Infrastructure: In a Class of Its Own Edward P. Keating Senior Vice President This presentation and all research and materials enclosed are property of Lazard Asset Management LLC. Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of the date of this presentation and are subject to change.

Key Takeaways Global Listed Infrastructure: In a Class of its Own  Inflation protection : stronger than commodities, REITS, timber, etc.  Stability : Robust, highly forecastable earnings; defensive companies  Yield : Stable earnings allow for sustainably high dividend yields  Attractive : Significantly undervalued today 1 Lazard Asset Management

Large, Diverse, Liquid Universe 400+ Listed Infrastructure Companies, $3 Trillion+ in Market Capitalization Transport Energy Water Communication Social  Toll roads  Gas & electricity  Pipelines &  Broadcast  Hospitals transmission, treatment plants  Airports  Satellite  Schools distribution &  Seaports  Cable  Prisons generation  Rail In recent years, there has been an international trend to increased private sector ownership and management of these assets. Infrastructure comprises the physical assets that a society requires to facilitate its orderly operation. 2 Lazard Asset Management They include:

Privately Owned, Listed Airports (stocks!)  Mexico (30+) : Monterrey, Los Cabos, Cancun, Guadalajara  Europe (20+) : Charles de Gaulle, Zurich, Vienna, Heathrow, Milan, Rome  Asia/Australia (25+) : Sydney, Melbourne, Auckland, Beijing, Guangzhou, Bangkok  USA (0) Copenhagen, Denmark Heathrow, Frankfurt UK , Germany Zurich, Vienna, Switzerland Austria Tokyo, Japan Monterrey, Mexico Sydney, Australia Publicly listed infrastructure companies form the largest opportunity set for global infrastructure investors with a total market cap more than US$3.0 Trillion. As of 31 December 2010 The information identified above should not be considered a recommendation or solicitation to purchase or sell any security. It should not be assumed that any investment was, or will be profitable. 3 Lazard Asset Management Source: Lazard Asset Management.

Why Invest in Infrastructure? Attractive Investment Characteristics Attractive characteristics that can be found in infrastructure:  Long-life  Low risk of capital loss  Inflation linked revenues  Low correlations with major asset classes Key risks associated with investing in Infrastructure:  Regulatory and political  Leverage  Real interest rates 4 Lazard Asset Management

Expected Risk and Return Expected Return Alternatives Listed Equities Preferred Infrastructure Real Assets Fixed Income Cash Expected Volatility For illustrative purposes only. 5 Lazard Asset Management Expected returns do not represent a promise or guarantee of future results and are subject to change.

Allocating to Global Listed Infrastructure Attractive Characteristics Offer Flexibility Asset Class Rationale for Listed Infrastructure Alongside… Infrastructure Largest infrastructure investment universe, Private Equity diversification, liquidity, transparency infrastructure Real Assets Contractual or regulated inflation protection REITS, Timber, Commodities Equities Lower risk, sustainable yield premium, Global Equities diversifying 6 Lazard Asset Management

Not All Infrastructure Is Created Equal… Preferred Non-Preferred Regulated Utility Merchant Electricity Generator (e.g., Southern Company) (e.g., E.On; Exelon)   Monopoly like assets Competitive markets   Regulated return Commodity price volatility   Explicit/implicit inflation pass through High fixed cost structure = Stable, consistent pattern of return = Volatile, uncertain pattern of return Other Preferred examples… Other Non-Preferred examples…  Toll roads  Construction companies, road services  Airports  Airlines, baggage handling  Broadcast towers  Telecommunication service companies  OECD nations  Most emerging market nations Strict adherence a Preferred Infrastructure investment philosophy is critical to delivering on the attractive characteristics of infrastructure 7 Lazard Asset Management The securities identified are not necessarily held by Lazard Asset Management and should not be considered a recommendation or solicitation to purchase or sell these securities.

Not All Infrastructure is Created Equal… Regulated Utility: Southern Company Merchant Electricity Generator : Exelon 5 Year Results 5 Year Results EPS Growth: +20% EPS Growth: -44% Stock Performance: +15% Stock Performance: -63% 50 2.8 95 4.4 85 2.7 45 75 3.9 2.6 40 65 2.5 3.4 55 35 2.4 45 2.9 30 2.3 35 25 2.2 25 2.4 Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan 08 08 08 09 09 10 10 10 11 11 12 12 13 08 08 08 09 09 10 10 10 11 11 12 12 13 Southern Company Share Price Exelon Share Price Southern Company EPS Exelon EPS 8 Lazard Asset Management

Compelling Real Asset Characteristics of Preferred Infrastructure “An Inflation Linked Bond with Rising Coupons” - Warren Buffett 9 Lazard Asset Management

A Framework for Evaluating Real Assets Three key criteria investors need to consider when considering Real Assets:  Strength of Inflation Pass Through • What is the inflation pass-through mechanism? Contractual or market reliant?  Risk Profile • What are the underlying risks of the asset type & cash flow stream?  Valuation • What are the key risks to valuation? • Are current asset prices materially above or below intrinsic value? 10 Lazard Asset Management

Real Assets Framework: Strength of Inflation Protection Contractual or Market Forces? Stronger Inflation Protection Contractual Asset Type TIPS Preferred Infrastructure Contractual or Regulated Pricing Mechanism Contractual (CPI) (Tariffs/Rates) Market Structure NA Monopoly Demand Volatility NA Low Risk of Capital Loss Low Low Weaker Inflation Protection Market Forces Asset Type Real Estate Timber Commodities Supply & Demand Supply & Demand Supply & Demand Pricing Mechanism (Rents) (Marginal Cost) (Marginal Cost) Market Structure Competitive Competitive Competitive Demand Volatility Moderate Moderate High Risk of Capital Loss Moderate Moderate Moderate/High 11 Lazard Asset Management Source: Lazard

Commodities: Inflation protection? Negative real returns since 1845 The Economist Industrial Commodity-price Index Real 1 Terms, 1845-2010 Equally-weighted Base Metals Real Price Index (Log) 120 100 80 60 1850 1870 1890 1910 1930 1950 1970 1990 2010 Over the long-run, as technology and efficiencies have improved, commodity prices have declined in real terms—that is, they have produced a negative real return Adjusted by US GDP deflator 12 Lazard Asset Management Source: The Economist

Real Assets Framework: Risk Profile Stability of Earnings Earnings $ 120 100 80 60 40 2002 EPS: Lazard PIU -6.0% 2009 EPS: Lazard PIU -3.0% 20 MSCI World -23.0% MSCI World -27.0% 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 MSCI World Lazard PIU Not all infrastructure companies will exhibit stable earnings – selectivity is critical As of 30 September 2013 Estimates based on historical financial accounts of companies held in the Lazard Global Listed Infrastructure strategy. Statistics are calculated using an index style construction methodology. Investment characteristics are based upon a portfolio that represents the proposed investment for a fully discretionary account. All estimates are based on current information and are subject to change. Past performance is not a reliable indicator of future results. 13 Lazard Asset Management Source: Lazard, UBS

Real Assets Framework: Risk Profile Stability of Dividends 8.0 7.0 6.0 5.0 4.0 3.6% Lazard GLI 3.3% UBS 50/50 Index 3.0 2.3% MSCI World Index 2.0 Dec 05 Jun 06 Dec 06 Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 As of 31 December 2013 Estimates based on historical financial accounts of companies held in the Lazard Global Listed Infrastructure strategy. Statistics are calculated using an index style construction methodology. Investment characteristics are based upon a portfolio that represents the proposed investment for a fully discretionary account. All estimates are based on current information and are subject to change. Past performance is not a reliable indicator of future results. 14 Lazard Asset Management Source: Lazard, UBS*, MSCI