Capitalizing on Infrastructure Investment Opportunities

People. Ideas. Success.

Guggenheim Partners Opportunities pp In Infrastructure Investment Scott Minerd Global Chief Investment Officer January 2014 CONFIDENTIAL

Guggenheim Investments (“Guggenheim”) represents the following affiliated investment management businesses of Guggenheim Partners, LLC: GS GAMMA Advisors, LLC, Guggenheim Aviation, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Investment Management, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners India Management, Guggenheim Real Estate, LLC, Security Investors, LLC and Transparent Value Advisors, LLC. This material is intended to inform you of services available through Guggenheim Investments’ affiliate businesses.

Infrastructure Investment In Today’s Macroeconomic Environment

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Global Debasement Will Erode Purchasing g Power Global Major Central Banks Combined Balance Sheet Assets as % of GDP* 30% 27.5%

25%

20%

15%

10% 2007

2008

2009

2010

2011

2012

2013

Source: Bloomberg, Guggenheim Investments. Data updated as of 12/31/2013. *Note: Major central banks include ECB, BoJ, BoE, and Fed. Data is combined after converting to U.S. dollars.

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Debtors Have Gained An Advantage g Over Creditors Real 10-Year Government Bond Yields* 12% U.S.

Germany

France

U.K.

10%

8%

6%

4%

2%

0%

-2%

-4% 1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

Source: Bloomberg, Guggenheim Investments. Data updated as of 12/31/2013. *Note: Real 10-year government bond yields are nominal yields subtracted by CPI YoY rate.

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Growing g Divide In Asset-liability y Matching g For Pension Funds Defined Benefit Pension Funds Asset and Liability Growth – Global Basis* (Normalized Levels at the End of 1998 = 100) 250

200

Liabilities

150

100

Assets 50

0 1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: Global Pension Assets Study 2013 , Tower Watson, January 2013. *Note: Global basis includes Australia, Canada, France, Germany, Hong Kong, Ireland, Japan, Netherlands, Switzerland, U.K., U.S.

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Whyy Infrastructure?

The Infrastructure asset class has an attractive risk-return profile and provides compelling investment opportunity for private capital.

INFRASTRUCTURE PROFILE Population growth

Diversification of risk

Regulatory g y processes

•

Real assets

•

Essential service to the economy or community

•

Regulated or monopoly-like environment – High barriers to entry – Assets difficult to replicate – Low bypass risk

•

Stable, predictable returns characterized by high cash yields and inflation protection

•

Low business model and operating risk

•

Inelastic demand and resilience to economic downturns

Ageing infrastructure

GLOBAL MACROECONOMIC DRIVERS OF INFRASTRUCTURE

Sustainability and natural resources scarcity

De-leveraging and refinancing

Fiscal pressures requiring req iring private pri ate participation

INFRASTRUCTURE OPPORTUNITIES •

•

Economic infrastructure – Transport: bridges, toll roads, tunnels, airports, seaports, freight rail – Utilities: gas and electricity networks, power generation, water and sewage – Other: car parks, storage facilities, renewable energy, communication infrastructure Social infrastructure Education – Healthcare –

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Increasing g Pension Fund Allocations To Alternative Investments Global Pension Asset Allocation 100% 6% 5%

3%

1%

6%

12%

2% 15%

1%

19%

Infrastructure: 6% of Total Alternative

80% % 30% 40%

36%

28% 33%

60%

Cash Alt Alternative ti Bonds Equities

40% 61% 51%

49%

55% 47%

20%

0% 1995

1999

2003

2007

2012

Source: Global Pension Assets Study 2013 , Tower Watson, January 2013.

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Characteristics of Infrastructure Investment

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Infrastructure Investment Can Offer Protection Against g Inflation EBITDA for an Equally Weighted Infrastructure Portfolio Compared to U.S. and EU-15 CPI Average* (1986-2006) 250 Economic Slowdown

Economic Slowdown

200

Infrastructure Portfolio

150

CPI Average

100 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Infrastructure Investing: A Portfolio Diversifier with Stable Cash Yields, J.P. Morgan Asset Management, FactSet, FAA, FHWA, ZMARAD, Eurostat, OECD, IMF, and company websites. *Note: Equally weighted infrastructure portfolio includes 256 mature infrastructure assets in the U.S. and EU-15 countries during 1986 – 2006. The data is not adjusted for exchange rates.

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Infrastructure Investment Provides Stable Cash Flows Annualized Volatility Comparison - Infrastructure Usage, U.S. Non-Discretionary Spending, and Equity Returns* (2000 – Present) 20% Equities

Non-discretionary Consumption (USD)

Infrastructure Usage (units)

16%

12%

Highly correlated with ith weather th 8%

4%

0% S&P 500

MSCI World

FTSE 100

MSCI Europe

Groceries Clothing (U S ) (U.S.) (U S ) (U.S.)

Drugs (U S ) (U.S.)

Electricity (U S and (U.S. E.U-15)

Water (U S ) (U.S.)

Miles Driven (U.S. and U.K.)

Enplane- Natural Gas ments Consumption (U.S. and (U.S. and E.U-15) E.U-15)

Source: J.P. Morgan Asset Management, Bloomberg, Economy.com, U.S. Energy Information Administration, U.S. Bureau of Transportation Statistics, Eurostat, Guggenheim Investments. Data updated as of 12/31/2013 for equity returns and as of 12/31/2012 for others. *Note: Equity returns are total return basis.

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Infrastructure Investment Has Outperformed p Over The Past Decade Historical Return and Volatility (January 2003 – Present) 18% %

Dow Jones Brookfield Global Infrastructure Total Return Index

15%

Annualized d Return

12% MSCI World Total Return Index

Credit Suisse US High Yield Total Return Index

9%

S&P500 Total Return Index Dow Jones Credit Suisse Hedge Fund Index

6% Barclays US Agg Total Return Index 3% Dow Jones-UBS Commodity Total Return Index 0% 0%

5%

10%

15%

20%

25%

Annualized Volatility

Source: Bloomberg, MSCI, UBS, Credit Suisse, Barclays, Guggenheim Investments. Data updated as of 12/31/2013.

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Global Infrastructure Opportunities

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Global Infrastructure Investment Needs,, 2013-2030 Global Infrastructure Investment Needs, 2013-2030 $70 Trn

$60 Trn

$9.5 Trn

$57.3 Trn

Telecom

Total

$11.7 Trn

$50 Trn

$40 Trn

$12 2 Trn $12.2

$30 Trn $0.7 Trn

$2.0 Trn

Ports

Airports

$4.5 Trn $20 Trn

$16.6 Trn

$10 Trn

$0 Trn Roads

Rail

Power

Water

Source: Infrastructure Productivity: How to Save $1 Trillion a Year, McKinsey Global Institute, January 2013.

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Global Infrastructure Opportunity pp y GLOBAL – $57 TRILLION (2013 – 2030) Global GDP could double by 2030 • Current C gateway and inland transport infrastructure f cannot meet 2030 demand • Quality infrastructure is key pillar of international competitiveness Private sector financing continues to deliver equity and debt capital needed to make infrastructure projects operational •

•

AMERICAS

EUROPE

ASIA PACIFIC

•

Evolving regulation

•

Clarity over regulation

Asia

•

Highly localized, political and complicated

•

Financial crisis

•

Combination of emerging and mature markets

•

Fiscal stimulus

•

Sovereign crisis

•

I Immature t regulation l ti

•

Significant underinvestment in public infrastructure and

•

Significant buying opportunity

•

Significant demand for infrastructure

•

Political risk

future investment gap in public infrastructure spending •

Limited privatization opportunities

•

Predominately energy assets available for purchase

Australia

Partial deregulation; failed market solutions for pricing

•

Extremely mature market

energy and capacity

•

Privatization in some states

–

Environmental regulations driving investment

•

Domestic funds have significant exposure

–

Continued portfolio rationalization by strategic

•

Market history has been both good and bad

–

corporations p •

South American opportunities are a developing focus

Source: Infrastructure Productivity: How to Save $1 Trillion a Year, McKinsey Global Institute, January 2013.

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More Infrastructure Spending p g Is Needed In Developed p Countries Infrastructure Stock Value as Percent of GDP

Infrastructure Spending as Percent of GDP 6%

Japan

Actual spend during 1992 - 2011 5%

South Africa

Estimated need during 2013 - 2030

Italy

4%

Poland 3% China 2%

Spain p Germany

1%

United States 0%

Average g excluding g Brazil and Japan = 71%

India

J Japan

United U it d States

EU

Oth Other D Developing l i Developed

W ld World

Canada United Kingdom Brazil 0

50

100

150

200

The world will need to spend more than it has over the past twenty years in order to maintain the infrastructure stock value to 70% of GDP. Developed countries include U.S. and EU are particularly underfunded.

Source: Infrastructure Productivity: How to Save $1 Trillion a Year, McKinsey Global Institute, January 2013.

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Rising Demand Of Infrastructure Investment From Rapid Urbanization In Emerging Markets Breakdown of Global Urban Population 1950 - 2015 80% Emerging

Developed

70%

60%

50%

40%

30%

20%

10%

0% 1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

Source: United Nations, The Infrastructure Opportunity: Repair, Build and Stimulate, Morgan Stanley Investment Management, February 2009

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I. North America Energy Infrastructure Opportunity

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Whyy North America Energy gy Infrastructure?

Significant capital requirements in robust and diversified market Assets typically yp y have high g capital p costs representing p g a significant g barrier to entryy • Assets frequently operate in a regulated or contracted environment providing high cash flow visibility • The need for energy is relatively inelastic • Long life assets (30 – 40 years) and high replacement costs provide a hedge against inflation •

Infrastructure Investment Criteria

Compelling Investment Opportunity

North America requires over $6.4 trillion* in energy infrastructure development • Private capital is crucial to satisfying the investment requirements of the energy industry •

• • •

Attractive Sector Fundamentals

• • • •

•

Asset Management Potential

Strong economic, environmental and policy trends driving coal plant retirements Abundant and low cost gas supply driving fuel mix and demand for investment in related facilities Policy driven demand for renewable energy in select locations Historic underinvestment in critical energy infrastructure assets, including electricity transmission and pipelines Evolving E&P technologies stimulating natural gas and oil midstream infrastructure investment in new shale regions Attractive asset valuations below cost of new build P f li rationalization Portfolio i li i by b corporate andd financial fi i l owners ddriving i i di divestitures i

Opportunities to increase asset value through: – Modernization, expansion, rehabilitation – Revenue optimization, including contract renegotiation, ancillary / value-added services – Cost rationalization – Leveraging services across multiple assets

Source: Guggenheim Investment, International Energy Agency, World Energy Outlook 2012. *Note: Figure represents projected cumulative investment in energy-supply infrastructure from 2012 to 2035.

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Expected p Growth Of Oil And Natural Gas Production In The U.S. U.S. Crude Oil Production

U.S. Dry Natural Gas Production

Million Barrels per Day

Million Cubic Feet

40

12

35

10

30 8

25 20

6

15

4

10 2

5 Projection

0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Projection 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

% of Production

% of Production 2012

2040

Lower 48 Onshore (ex Tight Oil)

36.1%

27.2%

Tight Oil

34.7%

42.7%

L Lower 48 Off Offshore h

21 0% 21.0%

26 6% 26.6%

Alaska

8.2%

3.5%

2012

2040

Lower 48 Onshore Conventional

24.6%

9.3%

Tight Gas

20.2%

22.4%

Shale Gas

40.4%

52.8%

Coalbed Methane

6.6%

4.5%

Lower 48 Offshore

6.9%

7.9%

Alaska

1.4%

3.1%

Source: U.S. Energy Information Administration (EIA). Data updated as of 12/31/2013.

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The U.S. Will Be An Energy gy Exporter p By y 2035 Oil and Gas Import Dependency in Selected Countries – 2010 vs. 2035 Gas Imports 100% Japan

2010 80% 2035 European Union

60%

40% China

India

20%

0% United States (20%) Gas Exports

20%

40%

60%

80%

100% Oil Imports

Source: IEA World Energy Outlook 2012, Guggenheim Investments. Data updated as of 12/31/2013.

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Development p Of U.S. Natural Gas Presents Promising g Investment Opportunities pp Total U.S. Natural Gas Production, Consumption, and Net Imports (1990 – 2035) 40 Net exports of 15.7% of total production in 2035

The lack of infrastructure in certain basins for transporting and processing NGLs is creating a

35

temporary bottleneck for

Trillion Cubic c Feet

development. Remotely located basins face challenges in getting the 30

Net imports of 5.7% of total consumption in 2013

product out of the g p ground and into the marketplace. Significant investment in infrastructure will be

25

needed over the next 25 years, with capital it l requirements i t expected t d tto exceed US$200 billion countrywide during that period.

20

-- KPMG Shale Gas: Global M&A Trends, 2011 15 1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

Source: EIA Annual Energy Outlook 2014 Early Release, KPMG Shale Gas: Global M&A Trends, 2011. Data updated as of 12/31/2013.

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Fuel And Technology gy Transformation •

•

Natural gas is replacing coal as the fuel of choice –

Abundant supplies point to lower and more stable prices

–

Natural g gas emits substantially y less air p pollutants and g greenhouse g gases

Over $80 billion1 of capital estimated to be required to replace the estimated 59 – 77 GW2 of coal-fired generation capacity retirements by 2016 –

Environmental regulations and fuel costs are driving the switch from coal to natural gas

US Electrical Generation by Fuel Type (MWh) 45%

Coal 35%

Natural Gas 25%

Renewables 15%

Nuclear

5% 2010

2015

2020

2025

2030

2035

2040

Source: EIA 2014 Annual Energy Outlook Early Release. *Note: 1. Based on Guggenheim Infrastructure estimated replacement mix of 80% gas / 20% renewables and estimated construction rates of $1,100/kW for natural gas and $2,500/kW for renewables. 2. Potential Coal Plant Retirements 2012 Update, The Brattle Group, October 2012.

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Geologically g y Diverse Hydrocarbon y Supply pp y •

Considerable infrastructure investment required to satisfy infrastructure demands of new shale plays

L Location ti off Major M j U.S. U S Shale Sh l Plays Pl

Sh l Resource Shale R Estimates E ti t

Gas (Trillion Cubic feet)

Oil (Billion Barrels)

Region

Shale Play Examples

Northeast

Marcellus, Antrim, Devonian

472

--

Gulf Coast

Haynesville, Eagle Ford

100

3

Mid-Continent

Fayatteville, Woodford

60

--

Southwest

Barnett

76

2

Rocky Mountain

Mancos, Lewis, Bakken

43

4

West Coast

Monterey / Santos

--

15

Total Onshore Lower-48 States:

750

24

Source: Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays, U.S. Energy Information Administration, July 2011.

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Related Energy gy Infrastructure Opportunities pp Midstream Oil & Gas Infrastructure to Support New Shale Plays1

Electricity Transmission

Historic underinvestment in transmission grid

•

•

•

Natural Gas needs 2011 - 2035:

–

C t allocation Cost ll ti iissues

•

50 000 miles 50,000 il off mainline i li & llateral t l pipelines i li

–

Permitting and siting difficulties

•

589 Bcf storage capacity

As much as $320 billion2 in transmission investment from 2011 – 2030 needed to alleviate bottlenecks and integrate renewable resources to load centers

•

32.5 Bcf processing capacity

•

Total investment required for natural gas is ~$205 billion

In North America, 34,000 circuit miles, of new high-voltage transmission lines are expected to be added from 2012 - 20223

Oil and NGL needs 2011 - 2035:

US Historical and Forecast Transmission Investment2

•

5 million bpd of transmission mainline capacity for oil

•

2 million bpd of transmission mainline capacity for NGLs

•

Total investment for oil & NGLs is ~$46 billion Forecast Midstream Infrastructure Investment 2011 – 20351 ($ Billion)

$46 $98

$23 $13 $43

Mainline Gas Pipe Compression & Storage

$30

Lateral Gas Pipe Processing

Gas Gathering Pipe Oil & NGL Pipelines

Source: 1. Interstate Natural Gas Association of America Foundation, 06.18.2011 and 02.15.2012. 2. Transmission Investment Trends and Planning Challenges, The Brattle Group, August 2012. 3. 2012 Long-Term Reliability Assessment, NERC, December 2012.

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II. Arctic Infrastructure Opportunity

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The Polar Ice Cap p In The Arctic Region g Is Melting g Rapidly p y Average Monthly Arctic Sea Ice Extent (September 1979 to 2013)

sq. km

9M

8M

7M

6M

5M

4M

3M 1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

Source: Goddard Sea Ice Remote Sensing & National Snow and Ice Data Center. Data shown from September 1979 through December 2013.

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Opportunities Oppo u es Abound: bou d S Shipping pp g S Shortcuts o cu s – Up To o 50% Faster as e Through oug The e Arctic c c

Source: U.S. Geological Survey

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The Arctic Expected p To Be The Fastest Growing g Region g In The World Projected Transit Freight in Traffic Volume along the Northern Sea Route 100

80

Million To onnes

Transit

The Northern Sea Route - East

60

The Northern Sea Route - West 40 From Murmansk to Northern S R Sea Route t Starting St ti Point P i t 20

0 2016

2020

2030

Source: The Issues and Prospects of an Expanded Arctic Transportation Network, Alexei Konovalov, 2012.

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III. Opportunities in the Infrastructure Investment Vehicles

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Comparison p Of Infrastructure Investment Vehicles

Investment Vehicles

Return Composition

Size

Unlisted Infrastructure

Capital growth in early years, income-dominated at mature stage

> $200 million

Infrastructure Equities

Mix of growth and income components

Institutional Bonds

Liquidity

Maturity

General Annual Return

Illiquid

Long-term

Mature: 7% to 10%

Any Amount

Established and increasing volumes in most markets

Short to Long-term

Typical historical returns of 10%+

Set coupon and low growth rate

Any Amount

Deep volumes in most markets

Short to Long-term

5% to 7%

Institutional Direct Real Estate

Mixed income and capital appreciation

> $20 million

Moderate to deep volumes in most markets

Medium to Long-term

Core: 7% to 9% Value-added: 11% to 15% Opportunity: 18%+

Public Equities

Mix of growth and income components

Any Amount

Deep volumes in most markets

Short to Long-term

Large possible range of returns

Source: A Compelling Investment Opportunity: The Case for Global Listed Infrastructure Revisited, RREEF Research, July 2011.

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Other Investment Types yp Expected p To Gain On Private Infrastructure Investment Investor Survey on Infrastructure Investment – Percent of Responders on Current and Future Implementation Methods

Private (Closed end)

Private (Open end)

Global listed infrastructure

Infrastructure debt

Co-investments

Directly in underlying assets

Fund of funds Current Secondaries

Future

Don't Know 0%

10%

20%

30%

40%

50%

60%

70%

80%

Source: Russell Investments’ 2012 Global Survey on Alternative Investing, Russell Investments, June 2012.

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European Bank Lending To The Infrastructure Sector Has Declined Due To Ongoing Crisis And Increased Regulations On Bank Capital Requirements European Project Finance Volume by Source of Funding $120 Bn

400 Bank loan (LHS) Bond (LHS) Equity (LHS) Number of Projects (RHS)

$90 B Bn

300

$60 Bn

200

$30 Bn

100

$0 Bn

0 2005

2006

2007

2008

2009

2010

2011

2012*

Source: From Policy to Proof of Concept, and Beyond – Outlook for infrastructure 2012, Freshfields Bruckhaus Deringer LLP, October 2012, Dealogic. *Note: 2012 data is annualized based on data in the first six months.

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Infrastructure Debt – Opportunities pp In Junior Debt Subordinated Bonds and Senior Debt Tranche

Unwrapped Senior Bond with Rating of A

Equity

Junior Bonds Wrapped Senior Bonds Credit Rating AAA with Underlying Rating of BBB

Traditional Infrastructure Bond Finance Structure

Equity

New Infrastructure Bond Finance Structure

A new model of project financial structures could reduce the risk to the senior debt tranche, increase the overall rating, and hence, improve the risk-reward profile. The amount of senior bonds required could be reduced and the gap could be filled by junior bonds.

The junior bonds would be acquired by specialist investors and would attract a higher yield than the senior bonds.

Source: Paving the Way: Maximizing the Value of Private Finance in Infrastructure, World Economic Forum, August 2010

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Appendix: Disclosures and Legal Notice

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Important p Notices and Disclosures Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: GS GAMMA Advisors, LLC, Guggenheim Aviation, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Investment Management, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners India Management, Guggenheim Real Estate, LLC, Security Investors, LLC and Transparent p Value Advisors, LLC. The information presented herein has been prepared for informational purposes only and is not an offer to buy or sell, or a solicitation of an offer to buy or sell, any security or fund interest or any financial instrument.

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Thee information o a o co contained a ed herein e e iss ggiven e as oof thee da datee hereof e eo aandd thiss does not o pu purport po too ggivee information o a o as oof aanyy other date. Neither the delivery of this document nor any sales made hereunder shall, under any circumstances, create an implication that there has been no change in the matters discussed herein since the date hereof. Š 2014 Guggenheim Partners, LLC. All Rights Reserved. No part of this document may be reproduced, stored, or transmitted by any means without the express written consent of Guggenheim Partners, LLC. The information contained herein is confidential and may not be reproduced in whole or in part.

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