Working Paper: CEPR ID: DP15946
Authors: Aleksandar Andonov; Roman Krussl; Joshua Rauh
Abstract: Institutional investors expect infrastructure to deliver long-term stable returns but gain exposure to infrastructure predominantly through finite-horizon closed private funds. The cash flows delivered by infrastructure funds display similar volatility and cyclicality as other private equity investments, and their performance depends similarly on quick deal exits. Despite weak risk-adjusted performance and failure to match the supposed characteristics of infrastructure assets, closed funds have received more commitments over time, particularly from public investors. Public institutional investors perform worse than private institutional investors, and ESG preferences and regulations explain 25-40% of their increased allocation to infrastructure and 30% of their underperformance.
Keywords: infrastructure; public pension funds; institutional investors; ESG regulation
JEL Codes: G11; G23; G28; H54; H75
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ESG preferences (Q51) | allocation to infrastructure investments (H54) |
| ESG regulations (G18) | allocation to infrastructure investments (H54) |
| ESG preferences (Q51) | underperformance of public investors (H54) |
| ESG regulations (G18) | underperformance of public investors (H54) |
| public institutional investors (G23) | underperformance compared to private investors (G19) |
| allocation to infrastructure investments (H54) | underperformance of public investors (H54) |
| non-financial objectives (L21) | investment in marginal deals (G31) |
| investment in marginal deals (G31) | lower financial returns (G19) |
| business model of closed funds (G23) | mismatch between investor expectations and actual outcomes (D84) |