What do you think about Macquarie Infrastructure?

I should say, Jake, that even though I like the concept of Macquarie Infrastructure (MIC), I don't really understand its fundamentals.

It invests in tollroads and parking garages, which are pretty dependable cash flow sources in all markets. I think it is probably a good anti-inflation play since its yield should always exceed the rate of inflation. It would have pricing power as a monopoly. And the assets of MIC should appreciate along with inflation. This is a little different animal than some of our other investments and I would research it thoroughly before investing in it (by reading their SEC filings, for starters) and maybe checking old news articles online.

There is a big question mark on the 2007 income statement. The SG&A expense is very large for the size of the business at around $194M vs. revenue of $831M. That is way too high. But in the 4th quarter, SG&A was a much more reasonable $6M vs. $264M revenue. That is what you would expect for a company this size. How much "selling" expense can there be in infrastructure? People use your facilities or they don't. There must have been some kind of one-time expense in 2007, but I don't know what it was or why it appears on that line. Normally, big one-time expenses are something like writeoff of goodwill after a big acquisition which is listed under "Other" or "Non-Recurring" expense.

Another concern that may be related to acquisitions last year is the fact that the dividend payout exceeded operating cash flow. You would never want to see that in any company. That means the company has to borrow or issue more stock to pay the dividend, lowering the owner equity per share. Borrowing in this type of company can be a concern if interest rates go way up. But for right now, that is not a concern. Maybe their need for financing for projects is cauing their stock price to go down, since they probably use municipal bonds to finance projects. Muni bonds have had problems recently due to the trouble at the monoline insurers.

You can't use earnings for any guidance in this type of company due to the large amount of depreciation for fixed assets in parking garages and toll roads (the toll booths and the roadways themselves). So, Operating Cash Flow is most important and I would keep a close eye on cash on the balance sheet, return on assets (as opposed to equity, since there will be a lot of borrowing in an infrastructure company like this). There should be some leverage, but I would want to see the debt to equity less than 1:1.

MGU is also interesting as is all of Macquarie Bank. It is an Australian company and has a global infrastructure perspective because of its location in the world and the Australian economy, which is very commodity and infr. related.

The IGF fund does not look that interesting, but I am sure it is fine.

Let me know how it works out.